Morning Note: Market news and an update from PepsiCo.

Market News

US equities moved higher last night – S&P 500 (+1.0%); Nasdaq (+1.5%). The US DOJ is weighing a historic break-up of Google as a remedy in its monopoly case. The US regulator is considering forcing the company to sell off parts of its operations, as it seeks to prevent the tech giant from using products including Chrome and Android to its advantage.

Minutes from September’s FOMC meeting will reveal the extent of consensus around the outsized move and may also provide a glimpse at the downside risks policymakers thought warranted the cut, according to Bloomberg Economics. The 10-year Treasury yields 4.02%. A $58bn sale of three-year Treasuries was soft. Gold slipped to $2,615 an ounce. The oil price steadied – Brent Crude is $77.70 a barrel – after falling 4%, the most in a year.

In Asia this morning, Chinese shares fell (Shanghai Composite, -6.6%) as traders weighed weak economic data from the Golden Week holiday and questioned Beijing’s commitment to more stimulus measures. The authorities announced a briefing on Saturday about fiscal policy. Elsewhere, the Nikkei 225 rose by 0.9%.

The FTSE 100 is currently trading 0.2% higher at 8,191. Pension funds are asking the UK government to revamp rules determining how public debt is measured, to encourage more investment in green industries. Sterling trades at $1.3060 and €1.1925.

Hurricane Milton regained Cat 5 strength and residents fled the coastline ahead of its expected overnight landfall. Catastrophe bond investors are girding themselves for substantial losses as the combined force of Helene and Milton looks set to trigger payment clauses on a scale not seen in years.

Boeing withdrew its contract offer, saying talks with its largest union don’t make sense now. S&P earlier said the plane maker may be cut to junk on strike concerns.

Source: Bloomberg

Company News

Yesterday afternoon, PepsiCo released its Q3 results and lowered its full-year revenue guidance for the second time this year. However, guidance for earnings has been reiterated and, in response, the shares rose by 2% 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 12 weeks to 7 September 2024, net revenue fell by 0.6% to $23.3bn, below the market forecast of $23.8bn. In organic terms (i.e., excluding currency and M&A), revenue growth was 1.3%, leaving the growth rate at 1.9% for the year to date. Net pricing of 3% was offset in part by a 2% volume decline. Organic growth in the international businesses (+4%) made up for a slight decline in North America.

PepsiCo faced subdued category trends in North America, the continued – though diminishing – negative impacts of the Quaker recall, and business disruptions from ongoing geopolitical tensions in certain international markets. 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 110 basis points, while the core operating margin grew by 75 basis points, as the group continued to deliver productivity initiatives, partially offset by planned business investments and an increase in advertising and marketing spend. Core constant currency EPS grew by 5% to $2.31, a touch above the market expectation of $2.29.

For the balance of the year, the group will further increase and accelerate its productivity initiatives and make disciplined commercial investments to stimulate growth. However, given the subdued performance of the group’s categories and results to date, for the full year the group now expects to deliver a low-single-digit increase in organic revenue, versus previous guidance for 4% growth. However, given the strong pipeline of productivity initiatives and focus on profitable growth, the group continues to expect to deliver at least 8% core constant currency EPS growth, implying core EPS of at least $8.15. The group also expects to deliver total cash returns to shareholders of $8.2bn, comprised of dividends of $7.2bn and share repurchases of $1.0bn.

Source: Bloomberg