Morning Note: Market news and an update from PepsiCo.

Market News


 

US equity markets ended last week on a positive note – S&P 500 (+0.6% to more than 5,000 for the first time), Nasdaq (+1.3%) – while trading in Asia was muted this morning with most markets shut for Lunar New Year. The FTSE 100 is currently little changed at 7,574. Sterling buys at $1.2643 and €1.1706.

 

Bond traders are aligning themselves with the US Fed by dialing back their rate-cut bets, seeing four (or at most five) 25-bp reductions this year. Separately, some 21% of respondents in a NABE survey think the Fed’s stance is “too restrictive,” the most since 2011. The 10-year Treasury yield is 4.16%, well above the recent low of 3.78%.

 

The ECB’s inflation and growth outlook due in March will be key to deciding when to start cutting rates, Pablo Hernandez de Cos said. That time is “fast approaching,” said colleague Fabio Panetta, who warned against too long a delay before easing.

 

Brent trades at $81.80 a barrel with OPEC set to release its monthly report tomorrow. The ongoing consolidation of the oil and gas industry looks set to continue – Diamondback and Endeavor may announce a merger as soon as today to create a Permian Basin energy giant worth more than $50bn, people familiar said. Gold held steady at $2,023 an ounce.

 

In the UK commercial property sector, following press speculation, Tritax Big Box REIT (BBOX) has this morning confirmed a possible all-share merger with UK Commercial Property REIT (UKCM). A deal would see BBOX offering 0.444 new shares for UKCM, representing an 11% premium to UKCM’s closing share price. BBOX has received non-binding letters of intent from Phoenix and Investec, who together own 56.5% of UKCM’s issued share capital. BBOX has until 8 March to either announce a firm intention to make an offer or walk away. In response, BBOX is down 3% this morning.

 



Source: Bloomberg

Company News

 

On Friday afternoon, PepsiCo released its Q4 results but provided slightly muted guidance for 2024. In response, the shares were marked down by 3% during US trading hours.

 

PepsiCo is a global food and beverage company with annual sales of more than $91bn. The portfolio includes more than 20 brands that each generate more than $1bn of annual retail sales, including Frito-Lay, Doritos, Walkers, Quakers, Pepsi, Gatorade, and Tropicana. The group’s products are consumed more than one billion times a day in more than 200 countries and territories around the world. The long-term targets are organic revenue growth of 4%-6% and core constant currency EPS growth in the high-single-digits.

 

During the final quarter of 2023, net revenue slipped by 0.5% to $27.9bn, a touch below the market forecast of $28.4bn. For the full year, revenue grew by 5.9% to $91.5bn.

 

In organic terms (i.e., excluding currency and M&A), Q4 revenue growth was 4.5%, leaving the growth rate at 9.5% for the full year, a touch behind the company guidance for 10% growth. Net pricing accounted for nine percentage points of the growth in Q4, with volume down 4%.

 

The annual performance highlights the resilience of the group’s categories and consumer demand trends, with global beverages and convenient foods businesses delivering 8% and 10% organic revenue growth, respectively. Growth was broad based across geographies, with the North America and International businesses delivering organic revenue growth of 7% and 12%, respectively.

 

Consumer preferences have continued to evolve towards smaller packages that offer the benefits of convenience, variety, and portion control.

 

The core gross margin rose by 100 basis points, while the core operating margin grew by 90 basis points, reflecting ongoing cost management initiatives.

 

Full-year core constant currency EPS grew by 14% to $7.62, a touch ahead of the 13% company guidance and the third consecutive year in which the group has delivered double-digit core constant currency EPS growth. In Q4, EPS grew by 9% to $1.78, slightly above the market expectation of $1.72.

 

Total cash returns to shareholders were $7.7bn, comprised of dividends ($6.7bn) and share repurchases ($1.0bn). The group announced a 7% increase in its dividend to $5.42, the 52nd consecutive annual increase.

 

The group highlights that category growth rates are normalising as consumer behaviours largely revert to pre-pandemic norms (such as returning to work, travelling more often, and consuming more away-from-home than at-home), albeit with a greater focus on convenience and good value. Net revenue growth is expected to moderate as inflationary pressures abate. Against that backdrop, the company will aggressively manage its costs to accelerate productivity, and invest more in its brands, innovation, channel expansion and corporate transformation. The group provided new guidance for 2024. Full-year organic revenue is expected to increase by 4% – slightly below market expectations – while core constant currency EPS is expected to grow by 8%.

 



Source: Bloomberg

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