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PepsiCo's (PEP +1%) mixed Q3 results are sufficient to push shares modestly higher today. The consumer packaged goods giant, which owns the Frito-Lay and Quaker, squeaked out a bottom-line beat in the quarter but fell short of revenue estimates, delivering a minor yr/yr contraction when analysts expected modest growth. Consolidated Convenient Foods and Beverages volumes fell by 2% each yr/yr, underscoring persistent global headwinds across food brands and a deterioration in international beverage consumption.

On the bright side, PEP did reiterate its FY24 adjusted EPS outlook of $8.15. However, the company once again trimmed its organic revenue growth forecast for the year, now targeting a low single-digit improvement yr/yr instead of approximately +4%, already down from "at least" +4%.

• A strained end consumer across North America has been a nagging issue for PEP, weighing on its food and beverage volumes throughout FY24. Beverage volumes slid by 3% yr/yr for the second straight quarter, impacted by a 5% jump in effective net pricing. Encouragingly, Frito-Lay volumes slipped by just 1.5% compared to a 4% decrease last quarter despite bubbling prices. Similarly, Quaker volumes compressed by 13%, better than the 17% and 22% declines over the past two quarters, as supply chain and recall disruptions continued to ease.
  • PEP commented that Lay's added 3 pts of household penetration in Q3 following aggressive investments deployed over the summer. Management remarked that it would apply this strategy to other categories outside potato chips, putting more money behind Doritos and Tostitos over the next quarter to drive further household penetration and potentially spur further volume improvements.
• A noticeable change in trend in Q3 occurred within PEP's beverage portfolio overseas. Volumes dipped 2% lower yr/yr, dragged down by broad-based weakness -- the best performer was Europe with flat growth. Meanwhile, Convenient Foods volumes remained negative at 2%. Several factors underscored the softening of beverage consumption, including moderate deceleration across China and Mexico. Also, geopolitical tensions pulled volumes lower in the Middle East. PEP expects this to persist over the coming months.
• On a lighter note, PEP continued to deploy supply chain automation and production enhancements, aiding its 15th consecutive earnings beat in Q3 and unchanged FY24 EPS guidance despite ongoing volume woes. Also, while near-term demand dynamics have been unfavorable, PEP is optimistic about long-term trends, pointing to Gen Z snacking patterns, middle-class development, and a general shift toward eating mini meals.

PEP's Q3 report may not have been all that and a bag of chips, but it was decent enough to stoke moderate buying activity today. Investors may be waiting for PEP's rivals' performance in their upcoming earnings reports. Coca-Cola (KO) is scheduled to deliver its Q3 report on October 23, and Keurig Dr Pepper (KDP) on October 24. In beverages, KO and KDP have been outperforming PEP lately. If this trend persists, PEP could move lower. However, in the interim, investors are applauding the improvement in Frito-Lay volumes and the potential stabilization of North American beverage volumes.