Citi Highlights Risks to PepsiCo’s Earnings, Predicts Potential Share Decline

Citi analysts have identified potential downside risks for PepsiCo ahead of its third-quarter earnings report scheduled for October 8, predicting a shortfall in organic sales growth (OSG). Consequently, the bank has initiated a negative 30-day catalyst observation for the stock.

The analysts forecast an OSG of +1.5%, significantly lower than the consensus estimate of +3.5%. They attribute this underperformance to weak trends in the North American market, where sales of beverages and snacks have been lackluster. However, international growth is anticipated to be in the mid-single digits.

Citi analysts warned, “We see risk to PepsiCo’s 2024 OSG guidance of approximately 4% and expect a revision down to around 3%,” projecting the OSG for next year at just +2.5%.

Regarding earnings per share (EPS), Citi expects PepsiCo to reaffirm its guidance of “at least $8.15” but acknowledges a slight risk of a potential reduction of around 100 basis points in the worst-case scenario.

While the firm is cautious about PepsiCo’s Q3 performance, forecasting an EPS of $2.28 compared to the consensus of $2.30, they maintain a Buy rating for the stock over the next 12 months.

The analysts stated, “Despite the anticipated downturn in Q3, we believe the key issue for PepsiCo is the potential need to rebase EPS for 2025.” They expressed concerns that the company might have to lower snack prices to stimulate demand, which could further impact next year’s earnings outlook.

Nevertheless, with the stock priced at around 20 times Citi’s below-consensus estimate of $8.50 EPS for 2025, the analysts believe that much of this risk is already incorporated into the current valuation. Therefore, they uphold their Buy rating for the long term, despite the immediate challenges ahead.