EARNINGS
PEPSICO
So, last week, Pepsi reported mixed results, with the stock price falling back to 2021 levels.
Specifically, they beat analyst expectations on revenue but missed on EPS.
More precisely, revenue came in at $17.92 billion, which, although down -1.8% year-over-year, still beat expectations by $190 million.
On the flip side, earnings per share came in at $1.48, missing analyst estimates by $0.01.
What’s even worse is that over the past year, the company has been seeing a steady decline in sales volume, even though they’ve managed to increase prices.
Specifically, sales volume dropped by 3%, showing that consumers are buying less, even though currency fluctuations had a positive impact, adding 3 percentage points to the result.
So what we’re seeing over the past two years is that revenue, earnings, and free cash flow have remained flat.
And as CEO Ramon Laguarta stated,
"More volatility and uncertainty are coming, especially due to developments in global trade. Supply chain costs will continue to rise. And consumers, in many markets, remain cautious with an uncertain future."
CHIPOTLE
It was a tough comparison year for Chipotle because last year they had a huge success with their Braised Beef Barbacoa and Chicken al Pastor campaigns, while this year started off with weaker demand.
Still, the company managed to post EPS of $0.29, beating analyst expectations by $0.01.
On the other hand, revenue came in at $2.9 billion, up 6.4% year-over-year, but slightly below analyst expectations of $2.94 billion.
The bigger concern was that the company announced its first decline in same-store sales in nearly five years — specifically, a -0.4% drop for this quarter, while the market had been expecting a +1.7% increase.
And all this while the cost of food, beverage, and packaging rose to 29.2% of revenue, due to higher prices in avocados, dairy, and chicken.
Still, CEO Scott Boatwright said,
"We have a strong plan to return to positive comps in the second half of the year."
DEMAND
Now you might be wondering, Why are we even looking at these companies' earnings?
Well, these two companies are some of the best indicators of how the average consumer is behaving globally. From Pepsi , which has a presence almost everywhere, to Chipotle , which reflects the American middle class. And what we’re seeing is pretty clear:
Consumers are pulling back.
Spending is dropping, and managing disposable income is becoming more important.
When consumption declines, it affects companies' revenues and earnings.
And when earnings take a hit, the markets start to rethink things.
The big question is:
Is this the start of a broader trend, or just a temporary slowdown?
We’ll find out soon enough, because this week we’ll get the Consumer Confidence numbers — and those will give us the first solid clues about where the economy and markets might be headed.
If consumers feel they need to cut back on spending, then we'll need to adjust our investments accordingly.
Until then, let’s invest with caution and stay calm.
Posted Using INLEO
