Pepsi: A Potential Buy, Despite Rich Multiples

Pepsi's (PEP) recent earnings release came mostly to reinforce that the snack and beverage company continues to perform robustly, despite the well-known macro and consumer choice challenges.

Credit: O Globo

Pepsi delivered a solid $0.10 beat on non-GAAP EPS, printing an 11% YOY bottom-line improvement that I find impressive for a mature company in the consumer staples sector. As the chart below illustrates, not much of the earnings increase came from better margins, but mostly from top-line growth driven primarily by the Europe Sub-Saharan Africa operations (+6% YOY) and Frito-Lay North America (largest segment, +3% YOY). Lower net interest, reduced non-GAAP tax rate and decreased share count that resulted from nearly $1 billion YTD in stock repurchases all served as additional (albeit modest) tailwinds to YOY EPS increase.

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