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Snack Attack: UBS Highlights PepsiCo's Strong Snacks Performance

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Snack Attack: UBS Highlights PepsiCo's Strong Snacks Performance

Shares of PepsiCo, Inc. (NYSE: PEP) were trading lower by around 0.50 percent early Tuesday morning even though the company reported a top- and bottom-line beats in its earnings report.

PepsiCo earned $1.50 per share in the second quarter on revenue of $15.71 billion while analysts were expecting the beverage and snack maker to earn $1.40 per share on revenue of $15.61 billion.

Driving PepsiCo's top-line beat was a 3.1-percent organic growth, which was 1 point better than expected, UBS's Stephen Powers explained during CNBC's "Squawk Box" segment. Leading this beat was strong sales in snacks, particularly Frito-Lay, which grew 3.5 percent and should be considered "best in class" across the entire food category.

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PepsiCo is also doing a good job in leveraging its snack and beverage business together as it offers food service companies an entire portfolio of product lines, the analyst continued. The strong performance follows the company's decision in 2016 to manage its snack, beverages and Quaker Foods North America under one unit run by Al Carey.

Is PepsiCo Moving Too Far Too Fast?

One of the biggest trends across the entire food sector is a shift toward healthier options — or as Squawk Box's co-host Joe Kernen says, "tasteless things." Joking aside, this does raise a concern for investors: Does PepsiCo need to move into this category?

The risk for PepsiCo is that the company moves "too far and too fast," the analyst answered. The company does indeed need to move into more healthier categories but it is a "balancing act" as it can't neglect strong performing but less healthy brands, such as Cheetos.

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Image Credit: By Leonard J. DeFrancisci, CC BY-SA 3.0, via Wikimedia Commons

Latest Ratings for PEP

DateFirmActionFromTo
Apr 2020SunTrust Robinson HumphreyMaintainsHold
Apr 2020CitigroupMaintainsNeutral
Apr 2020Morgan StanleyMaintainsOverweight

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