Key Points
PepsiCo reports third-quarter results Thursday, Oct. 8, with Wall Street expecting earnings of $2.30 a share on revenue of about $25 billion.
The stock is down about 10% this year, and JPMorgan downgraded it last week, saying its North American turnaround "appears to have stalled."
G7 leaders agreed to release 100 million barrels of oil over four months. U.S. crude ended down about 1.4%, near $91.50.
Employers added just 29,000 jobs in September, cutting the odds of another Fed rate hike this month.
The Nasdaq rose about 1.2% to a record close Friday, while the S&P 500 gained about 0.7%.
Earlier this year, PepsiCo tried something big companies rarely do: it cut prices.
In February, the company lowered prices on Lay's, Doritos and other chips by as much as 15% to win back shoppers who had walked away. Seven months later, the plan is going into reverse.
On Thursday, investors find out how much that experiment cost.
The Price Cut That Didn't Work
The numbers so far have been rough. PepsiCo's North American food revenue fell 2% in its last quarter, and volume was flat even with lower prices. CEO Ramon Laguarta said consumers were under more strain than expected because of higher gasoline prices.
Margins took the hit. Gross margin fell 48 basis points in the first quarter and 89 basis points in the second as input costs rose.
Now PepsiCo is changing course. In late September, a company spokesperson confirmed that prices on certain chips will rise by a low-to-mid single-digit percentage, in line with inflation. Prices will still sit below where they were before February's cuts.
Wall Street has noticed. JPMorgan cut the stock to Neutral from Overweight on Sept. 29, the second downgrade in a single week. Deutsche Bank had cut it to Hold days earlier, citing less certainty about its North American strategy. Its analyst said PepsiCo will likely need to lean on cost savings in the fourth quarter just to reach the low end of its 5% to 7% earnings-growth target.
What Wall Street Expects Thursday
EPS: about $2.30, versus $2.29 a year ago, essentially flat
Revenue: roughly $25 billion, versus $23.9 billion a year ago
Valuation: about 14.8 times forward earnings, near a three-year low and well below its average of about 18.6 times
PepsiCo shares edged up about 0.2% Friday to $125.89, while the broader market rallied.
The biggest question isn't the quarter. It's whether PepsiCo stands by its full-year earnings target while higher fuel and transportation costs pile up. American consumers just hit their gloomiest mood since 2014, and snacks are one of the first places shoppers trade down.
The G7 Steps In on Oil
High fuel costs are hurting PepsiCo, and they're the reason G7 leaders held an emergency video call Friday.
The group agreed to release 100 million barrels of oil from emergency reserves over four months, starting immediately, with a "substantial" diesel release in the first 20 days. Leaders cited "unprecedented volatility in oil markets." The group will meet again through the International Energy Agency to discuss more diesel releases. Spread evenly, the release works out to roughly 830,000 barrels a day.
Oil prices swung the same way. U.S. crude fell more than 4% early, to below $89 a barrel, on the G7 news. It ended down about 1.4% at roughly $91.50. Brent, the global benchmark, finished slightly higher near $103.
Not everyone thinks it will last. Barclays raised its fourth-quarter Brent forecast to $115 a barrel the same day, pointing to shrinking global inventories and restricted Gulf flows.
Still, cheaper fuel is a relief for any company that moves goods by truck. But the war between the U.S. and Iran hasn't ended, and a third U.S. aircraft carrier is heading to the region.
Friday's Setup
Friday's weak jobs report set the tone. Employers added just 29,000 jobs in September, the unemployment rate rose to 4.2%, and July and August were revised down by a combined 60,000 jobs.
By the close, the Nasdaq Composite gained about 1.2% to 27,190.86, a record close. The S&P 500 rose about 0.7% to 7,722.72, and the Dow added about 0.5% to 51,176.96. The VIX, Wall Street's fear gauge, fell about 7% to 15.31.
The 10-year Treasury yield had a wild day. It fell as low as 5.17% right after the jobs report, down from a high of 5.34% on Thursday, the highest since 2002. But it drifted back up through the afternoon and finished near 5.28%, slightly higher on the day. The 2-year yield, the one most tied to Fed policy, ended near 4.83%.
What Lands Next
Monday: The ISM services index, the next read on the biggest part of the economy.
Tuesday: Constellation Brands reports after the close. Analysts expect earnings of about $3.62 a share, and the stock has fallen about 20% since its last report.
Wednesday: Minutes from the Fed's September meeting, plus results from Levi Strauss and Applied Digital.
Thursday: PepsiCo, before the opening bell.
Friday: Delta Air Lines opens airline earnings, with analysts expecting about $1.96 a share. Jet fuel costs will be front and center.
Coming up: September CPI arrives Oct. 14. Anthropic is reportedly preparing to meet potential investors that same day, as Wall Street studies the books it just opened to the world ahead of a possible November IPO.
PepsiCo spent the year learning that price cuts can't fix a squeezed shopper. Now Washington and its allies are trying a different fix: cheaper fuel. Thursday's report will show whether either one is working.
This article is for informational and educational purposes only and does not constitute investment advice or a recommendation to buy or sell any security.
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