PepsiCo, Inc. PEP looks well-poised for growth on strength in its core categories, diversified portfolio, improved digital capabilities and flexible go-to-market distribution systems.
In the latest revelation, PepsiCo has agreed to purchase the remaining 50% interest in Sabra Dipping Company, LLC (Sabra) and PepsiCo-Strauss Fresh Dips & Spreads International GmbH (Obela). Hence, the company will be the sole owner of these companies, manufacturing Sabra and Obela products.
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Presently, Sabra and Obela are 50/50 joint ventures formed between PEP and Strauss Group to make, distribute and market refrigerated dips and spreads. The company formed Sabra and Obela 50/50 joint ventures with the Strauss Group in 2008 and 2012, respectively.
The beverage giant, PepsiCo, has been in the fresh dips category for more than 15 years now. Sabra has been a major hummus brand with almost $400MM in retail sales in the United States. The New York-based Sabra joint venture operates in the United States and Canada, while the Geneva-based Obela joint venture operates in Australia, New Zealand and Mexico.
The aforesaid transactions are subject to the customary closing conditions and likely to conclude by this year’s end. However, the additional terms of these acquisitions remain under wraps. Hence, PepsiCo will continue evolving its portfolio with accelerated innovation to build products that resonate well with the increasing demand from North American consumers.
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PepsiCo is focused on boosting greater efficiency by reducing costs and investing these savings back to develop scale and core capabilities. PEP expects to achieve the productivity goal through savings generated from restructuring actions. Such actions aim at further simplifying, synchronizing and automating processes. In addition, it has been reinforcing its international footprint.
This current Zacks Rank #3 (Hold) company also concentrates on holistic cost-management initiatives to boost productivity and uses these savings to offset cost inflation and prioritize investments in its brands, innovation and channel expansion. Such cost-management initiatives have been aiding PEP’s margins for a while. PEP’s core gross margin expanded 111 basis points (bps) while the core operating margin expanded 73 bps.
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However, PepsiCo’s shares have lost 7.3% in the past three months compared with the industry’s 7.6% decline. This underperformance is due to headwinds in the company’s North American operations since the start of 2024, including reduced consumer demand and product recalls in the Quaker Foods North America segment. Adverse currency rates continue to pose challenges. Citing these headwinds, PEP slashed its organic sales view to low-single-digit growth for 2024.
Stocks to Consider
Freshpet, Inc. FRPT, a pet food company, has a trailing four-quarter average earnings surprise of 144.5%. FRPT currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for Freshpet’s current financial-year sales and earnings per share (EPS) indicates growth of 27.3% and 224.3%, respectively, from the prior-year levels.
Vital Farms VITL, which provides pasture-raised products, currently sports a Zacks Rank of 1. The consensus estimate for Vital Farms’ current financial-year sales and EPS indicates growth of 27.3% and 88.1%, respectively, from the prior-year levels.
VITL has a trailing four-quarter average earnings surprise of 48.5%.
McCormick & Company MKC, marketer and distributor of spices, seasonings and specialty foods, currently carries a Zacks Rank #2 (Buy). MKC has a trailing four-quarter average earnings surprise of 13.8%.
The Zacks Consensus Estimate for MKC’s current financial-year sales and EPS indicates growth of 0.6% and 8.2%, respectively, from the year-ago figures.
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Freshpet, Inc. (FRPT) : Free Stock Analysis Report
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Vital Farms, Inc. (VITL) : Free Stock Analysis Report
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