PepsiCo Earnings Report for Q3

PepsiCo is scheduled to release its third-quarter earnings report on October 5, 2021. This release will forecast the company’s third-quarter earnings report based on the company’s previous quarterly report. The company achieved record net revenue and earnings per share in the second quarter. PepsiCo reported net income of $2.36 billion, or $1.70 per share, up from $1.65 billion, or $1.18 per share, a year ago.

Annual net sales increased by 20.5% to $19.22 billion, exceeding forecasts of $17.96 billion. Organic sales increased by 12.8% when foreign currency, investments, and divestitures were excluded.^[1]

Pepsi’s American beverage segment experienced the highest organic sales growth of the group’s divisions during the quarter, at 21%. The volume of its beverages increased by 15% during the quarter, and foodservice revenue quadrupled, which includes sales to restaurants, stadiums, and college campuses.

Frito-Lay North America, which includes Doritos and Cheetos, increased revenue by 6%. Convenience stores and foodservice outlets aided in the growth of sales as consumers became more mobile. As a result, the category has seen robust sales throughout the pandemic. It had grown organically by 6% the previous year.

Quaker Foods North America was the only sector to report a decline in organic revenue. Its volume decreased by 21%, resulting in a 14% decline in organic revenue. Organic sales increased by 23% year over year as consumers increased their breakfast consumption at home, increasing demand for maple syrup and oatmeal. According to Pepsi, organic revenue for the segment increased by 9% over the previous two years. Prior to the pandemic, it was the smallest component of Pepsi’s company.^[1]

Following such a good quarter, the firm now forecasts an 11% increase in constant currency profits per share, up from its earlier projection of high single digits. For 2021, the forecasted core profits per share are $6.20. Analysts for the whole year predicted an earnings increase of 7.2%.

Pepsi also lowered its organic sales growth projection for 2021 from the mid-single digits growth to 6%. As a result, the company’s estimates are more cautious, which may help it surpass expectations in the second half of the year ^[1].

Most investors who follow the stock expect earnings to grow slower than revenues, which increased by 4% to $1.73 per share in Q3. However, owing to Pepsi’s increasing sales presence and ambitious development investments in sectors like energy drinks, the longer-term picture is one of improving profit margins ^[2].

PepsiCo Stock Analysis

Although the company is gaining ground on organic sales, the stock price has declined since August 20. Although then it hit a high of 159, it has since been fluctuating between 150 and 159. The most recent drop came on September 30, when the price went below 150 for the first time since July 2021.

The price is below the 100-day MA on the daily chart, and the MACD is pointing downwards. This suggests a mild downtrend. Considering the overall scenario, the next resistance for PepsiCo lies around 166. If the price crosses this level, it could travel towards the $180 mark.

On the other hand, the stock’s support lies at 140. If the price breaches this level, it could further deescalate to the 130 mark ^[3].

1. https://investors.pepsico.com/docs/album/investors/q2-2021/q2-2021-earnings-release_szadjkp1vmp90fid.pdf
2. https://finance.yahoo.com/news/pepsico-track-beat-earnings-estimates-124124148.html
3. https://finance.yahoo.com/quote/PEP/chart

 

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Adnan Rehman

Market Analyst – Regional Market Analyst

Disclaimer: This material is provided as a general marketing communication for information purposes only and does not constitute an independent investment research. Nothing in this communication contains, or should be considered as containing, an investment advice or an investment recommendation or a solicitation for the purpose of buying or selling of any financial instrument. All information provided is gathered from reputable sources and any information containing an indication of past performance is not a guarantee or reliable indicator of future performance. Users acknowledge that any investment in Leveraged Products is characterized by a certain degree of uncertainty and that any investment of this nature involves a high level of risk for which the users are solely responsible and liable. We assume no liability for any loss arising from any investment made based on the information provided in this communication. This communication must not be reproduced or further distributed without our prior written permission.

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It’s boom times for investment banks again – investors beware

The biggest leveraged buyout ever attempted was the near-$50bn purchase of Canadian telecoms group Bell Canada Enterprises (BCE) by a group of private equity firms (a leveraged buyout is when a company is bought mainly using lots of debt, rather than cash or shares – hence the term “leveraged”).

The deal was signed off at the end of June 2007, literally weeks before the credit crunch began in earnest. It was to be financed with just over $30bn of debt.

But, as Bloomberg puts it, the deal “proved the last, glorious gasp of the past decade’s buyout frenzy, when debt-fuelled purchases for hot companies hit ridiculous heights.”

By the time Lehman Brothers collapsed, just a little over a year later, so had the BCE deal.

Why am I bringing it up now? Because it looks as though the buyout market (along with everything else) is getting excitable again.

Deal-making is hitting record levels again

Private equity groups Blackstone, Carlyle and Hellman & Friedman have raised almost $15bn, reports the FT, to fund a $34bn buyout of Medline, one of America’s largest medical supply manufacturers.

This isn’t 2007 levels yet in terms of size, but it is the biggest such deal we’ve seen in the post-2008 era. And in terms of numbers of deals and overall value, we’ve already surpassed the 2007 record.

The safeguards for lenders are also very weak by historic standards. This has been an ongoing process in these days of reliable bailouts.

“The environment could not be better for borrowers,” the FT quotes Christina Padgett from credit ratings agency Moody’s. “But it is generating a lot of old school aggression. Some of it feels reminiscent of 2007.”

It’s not the only bubbly area. Something else is shooting up to record levels – investment banking fees. This year, the big banks and advisers have already made more than $110bn from a combination of IPOs, merger and acquisition deals, and acting as underwriters for debt issuance.

Now to be fair, this combined activity surpassed the previous 2007 record some time ago, in 2017. But in the last two years, it’s really shot higher.

In short, we’ve got record equity issuance, record IPO volumes (in the US at least), record deal making – this is a hot market, with comparisons to the dotcom era and the pre-financial crisis days abounding.

This is something for investors to cheer right now; deal making tends to make share prices go up. It might be irritating if a company you hoped to hold for the long run gets bought out today at a price which doesn’t fully reflect your hopes – but, let’s be honest, most of the time none of us sheds too many tears if a company we own receives a bid.

It’s particularly good to see that even if no one else seems to recognise the value in the UK market, private equity investors certainly do.

Why record deal activity is a red flag

However, we do need to sound a note of caution.

There’s a reason deal-making activity and investment banking fees tend to hit record levels before crashes, and then collapse in the aftermath. As with the market for petrol or apples or toilet roll, supply and demand is a major factor driving the price of shares (and debt) too.

When demand is high (ie, share prices are high and rising and debt covenants are lax and only getting more so), then the City and Wall Street want to feed the machine. Just as a miner will dig more holes and vomit out more rocks when commodity prices rise, so bankers will bring more deals to market.

And just as a manic commodity boom sees oil companies proposing to plumb the depths of the Mariana Trench with nary an eyelid batted, or miners getting their spades out for ever-more tenuous patches of war-torn soil, so the quality of deals in a financial market boom deteriorates.

When will supply overwhelm demand? Who knows, is the simple answer. All you can really tell from this data is that we’re a lot closer to that point than we were a few years ago.

So it’s just another indicator among many to add to your “where are we in this particular cycle?” bucket.

I suspect there’s a bit to go yet. The world’s dependence on cheap credit has rather tied the hands of central bankers (even if they are loath to admit it) and it will only take a wobble to send them back to the drawing board on raising interest rates.

In the meantime, as we’ve already noted, it’s another solid reason to have at least part of your portfolio invested in the UK.

Private equity buyers might be seen as smarter than average but at the end of the day, they’re only human, and their herding instinct is just as strong as anyone else’s. If they see deals being done, they’ll want to know what they’re missing out on. And right now the UK is one of their favoured locations.

This is something we’ll more than likely be discussing at the virtual MoneyWeek Wealth Summit in November. Don’t miss it!

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Turkish Lira Falls As Inflation Soars

Inflation SurgesFocus is back on the CBRT this week following news that Turkish inflation last month was seen rising by it highest pace in over two years, taking inflation in the country back up to almost 20%. The CBRT has been involved in a heavy, two-year battle to help curb spiralling inflation. The central bank was successful in bring inflation down from 25% highs to around as low as 15% last year. However, inflation has been steadily climbing again over recent months with TRY weakening heavily against the Dollar, taking USDTRY up to fresh, record highs.Biggest Increase in 2 YearsThe data released today shows that Turkish inflation reached 19.58% last month, up from 19.25% the month before. At this level, price are almost 400% above the central bank’s inflation target. The recent inflationary spiral comes after the former CBRT head was removed by the government and replaced. President Erdogan has made his distaste for higher interest rates very clear and following the former CBRT head’s campaign of interest rate hikes (in order to curb inflation), his successor is seen as being a proponent of lower rates, creating conditions for inflation to soar once again.The CBRT unexpectedly cut its headline interest rate by 1% last month. The move was widely criticised by those concerned about the inflationary spiral underway, drawing a clear link between the government and the central bank. While the two roles are supposed to be distinct, Erdogan’s intervention by replacing the former CBRT head is a clear sign of how much influence the government has on the CBRT.Energy Crisis ImpactThe global energy crisis and supply chain issues stemming from COVID is adding further fuel to the situation. Soaring fuel prices and a distribution shortage have created uncomfortable conditions for central banks around the world. The key question now is just how far Erdogan is prepared to let inflation run. While the Turkish president is a strong opponent of higher rates, the fall off in TRY at a time when USD is rising creates a dangerous platform for inflation to run into hyper inflationary territory from which the CBRT might struggle to correct the situation.Technical ViewsUSDTRYThe recent rally in USDTRY has seen the market breaking out of the corrective bear channel with price breaking through the former highs around 8.7921 to trade up to highs around the 9.0000 mark. While price has softened a little here, both MACD and RSI remain positive, keeping the focus on further upside in the near term.

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Market Spotlight: S&P Trade Hits First Target

S&P Turns LowerThe recent short trade in the S&P 500 was triggered last week with the market breaking down through the 4383.50 level, hitting the initial target at 4295.75. The rally in USD on heightened tightening expectations has seen the equities complex breaking down, taking the S&P lower. Recent hawkish comments from several Fed members has seen USD trading higher, weighing on asset prices. With both MACD and RSI bearish here, the focus is on further downside in the near term while the market holds below 4383.50, keeping 4236.50 as the next target.Key Data to WatchThe key data risk for equities this week is the September US labour reports due on Friday. The market is looking for an increase in jobs growth over the month which, if confirmed, will send USD higher, keeping equities under pressure. Aside from US data, the focus will be on broader risk flows with traders advised to keep an eye on the Evergrande crisis which holds the potential, to further weigh on risk appetite, sending equities prices lower.

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Weekly Market Outlook 04-10-21

In this Weekly Market Outlook 04-10-21, our analyst looks into the trading week ahead, possible market moving data releases across the globe and the technical analysis to accompany it!

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Precious Metals Monday 04-10-2021

GoldThe gold market has started the week under slight selling pressure with prices retreating over the early European session on Monday. In the near term, the key driver for gold continues to be Fed rate hike expectations. A slew of more hawkish comments from several Fed policymakers last week helped lift the Dollar. However, softer data across the back end of the week weighed on USD sentiment, turning the focus back to concerns around economic growth. While the market is keen to push USD higher on any positive input, there is still some uncertainty around Fed tapering given the frequent data misses we are seeing.This week, the big focus will be on the US September labour reports due on Friday. While the Fed has recently acknowledged the strength in inflation, chairman Powell noted that employment remains far from maximal levels. With this in mind, Friday’s data holds the potential to create a lot of market volatility if we see an upside surprise. On the back of the significant undershoot we saw in August’s data, the market is no looking for September jobs growth of 490k, up from 235k prior. If we see a print around this level or above, it will likely sharpen the market’s tapering expectations, creating plenty of demand for USD, weighing on gold. However, should the data underperform once again, gold prices will likely trade much higher in reaction to the data, with USD likely to come under heavy selling pressure.SilverThe sliver market has largely tracked the recent moves in gold. The resurgence in USD over the last month has weighed heavily on silver with the market shedding around $3 in September as global demand concerns and a stronger Dollar weighed on sentiment. The fall back in equities recently has been an issue for silver also, particularly given the metal’s relationship with the industrial indices. Looking ahead this week, USD data will be key for the path of silver with any USD upside likely to create further selling pressure in the metal.Technical ViewsGoldThe recent decline in gold has seen the market trading back down to retest the broken bear channel top. Price has subsequently seen a small bounce. However, the 1763.88 level is holding as resistance for now. With indicators still bearish, the focus is on continued downside while below the level. Back above there, however, there is room for a move up to 1826.71 next.SilverThe decline in the sliver market has seen price trading lower within a well defined bearish channel. Recently, the break below the 22.3205 level saw buyers step in taking price back above the level. With bullish divergence in momentum studies around this area also, there are signs the market Is due a correction higher in the near term, with 24.0073 the key upside level to watch.

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DAX is approaching a pivot, potential trend reversal! | 4th Oct 2021

Type:Bearish BreakoutPreference:DAX is approaching our pivot area at 14946.66 in line with 100% Fibonacci projection and graphical swing low. Price has the potential to bounce to our 1st resistance at 15270.45 in line with 38.2% Fibonacci retracement.Alternative Scenario:Alternatively, price may dip further to 1st support at 14793.98 in line with 127.2% Fibonacci retracement.

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EURUSD is at a Pivot, potential for bounce! | 4th Oct 2021

Type:Bullish BouncePreference:EURUSD is testing our Pivot at 1.15901 in line with 61.8% and 23.6% Fibonacci retracement. Price has the potential to climb higher towards our area of resistance at 1.16649 in line with 161.8% and 61.8% Fibonacci retracement which is a graphical overlap.Alternative Scenario:Alternatively, price have the potential to dip to our support at 1.15606 which is a graphical swing low.

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USDJPY is approaching a pivot, potential for bounce! | 4th Oct 2021

Type:Bullish BouncePreference:Price is approaching our pivot at 110.833 in line with 127.2% Fibonacci extension and graphical overlap level. We can expect prices to climb higher to 1st resistance at 111.653 which is a graphical swing high and in line with 61.8% Fibonacci retracement.Alternative Scenario:Alternatively, price may dip towards our area of support at 110.437 with 161.8% and 127.2% Fibonacci extension.

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VCTs: how to invest in Britain’s most exciting companies

Venture capital trusts (VCTs) are delivering on their promise. They were introduced by the government in 1995 to support small, innovative, fast-growing businesses. Today, six VCT-backed firms have become “unicorns” (private companies worth more than $1bn). 

More are growing at a double- or triple-digit rate, often doubling or tripling sales year-on-year. Very few, if any, of the companies listed on the main stockmarket can match that. VCTs are becoming the UK’s growth asset class: £109m has been invested in VCTs this tax year, nearly seven times as much as at the same stage in 2020-2021. 

Generous tax relief with VCTs

The opportunity to back some of Britain’s most exciting companies is increasingly appealing to investors. So are the generous tax reliefs VCTs offer, especially now that the tax burden looks set to reach unprecedented levels owing to a combination of tax increases (on the dividend tax and national insurance) and heavier restrictions on available tax reliefs (the pension lifetime-allowance freeze). When you invest in a VCT, you receive up to 30% tax relief. All returns, typically paid through dividends, are also tax-free. You can invest up to £200,000 a year.

Hargreave Hale Aim VCT (LSE: HHV) stands out because – in addition to its emphasis on Aim-listed companies – it can also back unquoted companies. The VCT’s largest holding is a private company: recipe-box delivery service Gousto, which achieved unicorn status in November 2020. The manager is one of the most respected small-cap investors in Britain and the trust has delivered strong returns, nearly doubling investors’ money in the five years to June 2021.

Making profits from pasta

Pembroke VCT (LSE: PEMB) is a relatively young VCT that is coming of age. Launched in 2013, it has always focused on backing rising stars, particularly consumer brands with premium-pricing potential. This year it achieved its first two profitable exits – fresh-pasta delivery service Pasta Evangelists and cold-pressed juices and nut-based milks producer Plenish. 

Investors have already received 8p in dividends, with another 3p final dividend expected to be paid in November (new investors can qualify). The portfolio looks very promising, boasting a number of fast-growing companies that have fared well during the pandemic. 

The British Smaller VCTs – British Smaller VCT (LSE: BSV) and British Smaller VCT 2 (LSE: BSC) – were part of the first crop of VCTs launched 25 years ago. Their record shows strong performance and consistent dividend payments. They were once renowned for management-buyout deals, but since 2015 they have concentrated exclusively on growth capital investments. One of them, Matillion, a Manchester-based company that specialises in helping global businesses make sense of their data, became the UK’s latest VCT-backed unicorn in September 2021. Matillion, first backed in 2016, has since become the largest holding in both VCTs. 

Listed US peers such as Snowflake trade on substantially higher valuations. If Matillion maintains its current growth trajectory and seeks a stockmarket listing, investors could see a significant uplift to the value of the VCTs.

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A Canadian fund for the cautious income investor

Over the last few months, I’ve been focusing my attention on boring funds. The equity bulls haven’t yet been reined in, but my hunch is that we are in for a more volatile ride and a small move to a more defensive position might make sense. That brings me to the capital of boring, Canada – apologies to all Canadian readers, but I hope you take it as a back-handed compliment. 

Canada has just been beset by election mania, for the second time in two years. Yet despite the increasingly frenzied electioneering, the result was never on course to make much difference to investors. This makes it very different to Germany, where the swing leftwards at the weekend may have huge consequences.

A no-change election

The election ultimately saw Justin Trudeau’s Liberals return to power in another minority government. However, it’s worth noting that overlaps between the parties’ policies seemed more common than jarring differences.

 Take climate change and the energy sector. Both the Liberals and the Conservatives backed federal carbon taxes and supported long-term incentives for electrification and clean fuels as part of the energy transition, but also supported expansion of a major pipeline to increase crude oil exports. Or consider real estate. House prices may be overvalued, but all major parties support high levels of immigration, which should in turn help drive them even higher. None have a problem with the current immigration target of 1.2 million people by the end of 2023. 

There are bigger differences in areas such as finance: the Liberals plan to increase taxes (by 3%) for banks and insurers making over C$1bn (£583m) in net profits. But overall there was little proposed that would have resulted in major changes for investors –and that reinforces one central truth: Canada is a real safe haven. 

A safer fund at a big discount

This brings me to a fund called Middlefield Canadian Income (LSE: MCT), which invests in largely (though not exclusively) Canadian stocks. Over 50% of the portfolio is in real estate businesses and financials. It has a strong income focus with the dividend yield of 4.7%. Crucially you’re buying into these equity assets at a double discount. The discount to net asset value (NAV) is 13.3%, which is high, by historic standards, and a bit peculiar as Canadian equities have rallied strongly. Yet Canadian equities also remain cheap compared to their neighbours across the border, because the US market is dominated by fast-growth tech businesses while Canadian equities look more old-world. 

Sectors such as energy, real estate and financials are key – and these should still have significant upside, having lagged their US counterparts because the US vaccine roll-out started earlier than in Canada, argues Dean Orrico, the manager of the fund. He is in a good position to make that assessment: in the past, the trust has heavily invested in equally boring stocks in the US market. Total US exposure – especially to big banks – hit 36% in the portfolio in May 2020, but that has now been dialled back to around 8%. 

I think that switch looks sensible. Canadian banks “are consistent dividend growers and possess high capital levels and low pay-out ratios, and trade at attractive valuations to US peers”, say fund analysts at Investec. They also see opportunities in industrial real estate investment trusts, where “e-commerce activity has increased as a result of the pandemic and continues to drive demand for industrial properties, with low availability rates in Vancouver, Toronto and Montreal”.

Middlefield Canadian will never seem terrifically exciting compared to a growth machine like Scottish Mortgage. However, for income-hungry, defensive equity investors, I think Canada looks a safer bet for riding through any imminent market volatility. 

from Moneyweek RSS Feed https://moneyweek.com/investments/funds/investment-trusts/603910/a-canadian-fund-for-the-cautious-income-investor
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Investment Bank Outlook 04-10-2021

CitiEuropean OpenAsian weakness seemed to be the theme during the session today, over broader concerns of global recovery as well as some concerns around a trading suspension for Evergrande. Holidays today in AUD, CNY and KRW kept the session relatively quiet as well. USD, JPY, CHF saw slight upticks as a result of the sentiment. Nevertheless, eyes will be firmly placed on the OPEC+ meeting later today. Given the latest rise in oil prices, Citi Commodities Strategy flags that the committee is likely to double production to 800k B/D for November.Looking ahead, we flag a set of central bank talk, starting with GBP’s Dave Ramsden & Mark Carney (13:00 BST) and USD’s Bullard (17:00 BST). We do not expect any surprises from these speeches. We also note that CHF and TRY will see data in the form of CPI at 07:30 BST and 08:00 BST respectively. COP will see the Colombia Monetary Policy Minutes at 23:00 BST, which will be interesting following the sighting of two hawkish dissenters at the meeting.USD traded slightly higher with Asia seeing some weakness during the session. CHF and JPY traded flat, and most of the remaining G10 currencies saw slight dips. This seems to be driven by broader views on global recovery, as well as Evergrande’s suspension of trading. HSI and NKY saw dips of around 1.9% and 1% respectively.JP MorganEUR Plenty of debate around further slowing in growth and sticky inflation and what that means for the dollar, higher global yields and commodity prices are complicating the trading environment also. I would say that people have tentatively chased this recent dollar rally, but there doesn’t feel a huge conviction about it at all, dollar performance has been mixed, and the whipsaw in currency markets at the end of last week demonstrates it won’t be one way traffic. The key for me is still growth here, we continue to downgrade our forecasts and supply concerns in both raw material and labour markets linger, the less transitory these issues are the more it will continue to weigh on sentiment, any signs of improvement and there is plenty of bearishness out there. For now risk wise am still fairly light, prefer to stay a bit flexible here until the bigger picture story becomes a bit more definitive. I remain small bearish usdjpy for now, selling against big resistance levels last week as US yields take a breather, but reality is payrolls data Friday will be important and the main focus, one eye on the US update on China trade situation later today as well. I also remain core short eurczk. The euro is consolidating below last week’s technical break, caught up in the mixed dollar moves on Friday so stabilised, but whilst below 1.1660 the market will favour the downside. Targets remain fairly uneventful for now, 1.15 initially so really awaiting developments to determine if this is the start of something bigger, real money has yet to really engage on this move as yet.

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BTCUSD bearish reversal | 4th Oct 2021

TypeBearish DropSupport: 43684.39Resistance: 48772.24Pivot: 47607.65Preference:Price is expected to reverse back down from the pivot level in line with 23.6% Fibonacci retracement and push down towards the 1st Support in line with 127.2% Fibonacci projection and 61.8% Fibonacci retracement.Alternative Scenario:Alternatively, price can push up towards the 1st Resistance in line with previous swing high.

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NIKKEI potential bullish bounce | 4th Oct 2021

TypeBullish BounceSupport: 27641.42Resistance: 29486.3Pivot:28362.81Preference:Price is approaching descending trendline resistance turn support and awaiting for a bounce. We can expect price to bounce from pivot level in line with 61.8% Fibonacci retracement and 161.8% Fibonacci projection towards the 1st Resistance in line with 127.2% Fibonacci projection and 50% Fibonacci retracement.Alternative Scenario:Alternatively price can push downwards towards the 1st Support in line with 78.6% Fibonacci retracement.

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