Market Snapshot
briefing.com
| Dow | 34405.17 | +57.83 | (0.17%) | | Nasdaq | 14131.90 | +212.56 | (1.53%) | | SP 500 | 4506.08 | +32.65 | (0.73%) | | 10-yr Note | +8/32 | 3.76 |
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| | NYSE | Adv 2052 | Dec 851 | Vol 835 mln | | Nasdaq | Adv 2890 | Dec 1550 | Vol 5.2 bln |
Industry Watch
| Strong: Communication Services, Consumer Discretionary, Information Technology, Health Care |
| | Weak: Energy, Health Care |
Moving the Market
-- Digesting the June Producer Price Index, which was cooler than expected, and weekly initial jobless claims report, which showed continued strength in the labor market
-- Sentiment boost after Delta Air Lines (DAL) and PepsiCo (PEP) reported better-than-expected Q2 results and guidance
-- Continued strength in the mega caps
-- S&P 500 testing the 4,500 level
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Closing Summary
13-Jul-23 16:25 ET
Dow +47.71 at 34395.05, Nasdaq +219.61 at 14138.95, S&P +37.88 at 4511.31
[BRIEFING.COM] It was another strong day for stocks. The S&P 500, which closed above 4,500, and the Nasdaq Composite ultimately settled near their highs of the day while the Dow Jones Industrial Average lagged. Mega caps gains boosted index performance, but many stocks participated in the rally.
The positive price action was driven by the belief that the economy can avoid a hard landing and that the Fed is close to being done raising rates. That belief was corroborated by today's better than expected economic data on the heel's of yesterday's cooler-than-expected CPI report.
Briefly, the Producer Price Index for final demand increased 0.1% month-over-month in June (Briefing.com consensus 0.2%) following a downwardly revised 0.4% decline (from -0.3%) in May. The index for final demand, less foods and energy ("core PPI"), also increased 0.1% month-over-month (Briefing.com consensus 0.2%) following a downwardly revised 0.1% increase (from 0.2%) in May.
On a year-over-year basis, the Producer Price Index for final demand was up just 0.1% while the Producer Price Index for final demand, less foods and energy, was up 2.4%.
Initial jobless claims for the week ending July 8 decreased by 12,000 to 237,000 (Briefing.com consensus 247,000) while continuing jobless claims for the week ending July 1 increased by 11,000 to 1.729 million.
Treasuries built on their post-CPI gains in reaction to this morning's data. A late afternoon increase in buying interest in the Treasury market coincided with the S&P 500 and Nasdaq climbing to their highs of the day. The 2-yr note yield dropped 12 basis points to 4.61% and the 10-yr note yield fell 10 basis points to 3.76%. The U.S. Dollar Index slipped below 100.00, falling 0.7% to 99.78.
Today's positive sentiment was also helped by the better-than-expected Q2 results and guidance from Delta Air Lines (DAL 47.71, -0.24, -0.5%) and PepsiCo (PEP 187.53, +4.36, +2.4%), and news that Exxon Mobil (XOM 104.54, -1.95, -1.8%) will be acquiring Denbury (DEN 86.64, -1.11, -1.3%) in an all-stock transaction.
Semiconductor stocks and small caps were clear pockets of strength today, reflecting the market's positive economic outlook. The PHLX Semiconductor Index rose 2.4% and the Russell 2000 rose 0.9%.
Bank stocks also assumed a leadership position in front of earnings reports from JPMorgan Chase (JPM 148.87, +0.72, +0.5%), Wells Fargo (WFC 43.71, +0.45, +1.0%), Citigroup (C 47.68, +0.30, +0.6%), and others ahead of the open tomorrow. The SPDR S&P Regional Banking ETF (KRE) and the SPDR S&P Bank ETF (KBE) both gained 1.7% today.
Only two of the 11 S&P 500 sectors registered losses -- energy (-0.5%) and health care (-0.01%) -- while the communication services (+2.3%), information technology (+1.5%), and consumer discretionary (+1.1%) sectors closed at the top of the leaderboard. Volume at the NYSE today was below average.
- Nasdaq Composite: +35.1% YTD
- S&P 500: +17.5% YTD
- S&P Midcap 400: +11.1% YTD
- Russell 2000: +10.8% YTD
- Dow Jones Industrial Average: +3.8% YTD
Reviewing today's economic data:
- The Producer Price Index for final demand increased 0.1% month-over-month in June (Briefing.com consensus 0.2%) following a downwardly revised 0.4% decline (from -0.3%) in May. The index for final demand, less foods and energy ("core PPI"), also increased 0.1% month-over-month (Briefing.com consensus 0.2%) following a downwardly revised 0.1% increase (from 0.2%) in May.
- On a year-over-year basis, the Producer Price Index for final demand was up just 0.1% while the Producer Price Index for final demand, less foods and energy, was up 2.4%.
- The key takeaway from the report is that wholesale inflation pressures are clearly moderating, which should be a boon for profit margins for companies able to retain pricing power.
- Initial jobless claims for the week ending July 8 decreased by 12,000 to 237,000 (Briefing.com consensus 247,000) while continuing jobless claims for the week ending July 1 increased by 11,000 to 1.729 million.
- The key takeaway from the report is the understanding that initial jobless claims continue to run well below recession-like levels, reflecting a continued solid state for the labor market that is supportive of consumer spending growth and the soft landing view.
- The weekly EIA Natural Gas Inventories showed a build of 49 bcf versus a build of 72 bcf last week.
Looking ahead to Friday, market participants will receive the following economic data:
- 8:30 ET: June Import Prices (prior -0.6%), Import Prices ex-oil (prior -0.1%), Export Prices (prior -1.9%), and Export Prices ex-agriculture (prior -1.8%)
- 10:00 ET: Preliminary July University of Michigan Consumer Sentiment survey (Briefing.com consensus 65.6; prior 64.4)
Treasuries settle with gains
13-Jul-23 15:30 ET
Dow +81.81 at 34429.15, Nasdaq +230.70 at 14150.04, S&P +40.54 at 4513.97
[BRIEFING.COM] The S&P 500 and Nasdaq continue to climb.
Treasuries settled with gains across the curve. The 2-yr note yield dropped 12 basis points to 4.61% and the 10-yr note yield fell 10 basis points to 3.76%.
Looking ahead to Friday, market participants will receive the following economic data:
- 8:30 ET: June Import Prices (prior -0.6%), Import Prices ex-oil (prior -0.1%), Export Prices (prior -1.9%), and Export Prices ex-agriculture (prior -1.8%)
- 10:00 ET: Preliminary July University of Michigan Consumer Sentiment survey (Briefing.com consensus 65.6; prior 64.4)
Energy complex futures settle mixed; energy sector lags
13-Jul-23 15:10 ET
Dow +57.83 at 34405.17, Nasdaq +212.56 at 14131.90, S&P +32.65 at 4506.08
[BRIEFING.COM] The S&P 500 and Nasdaq continue to climb while the Dow Jones Industrial Average lags.
Energy complex futures settled the session mixed. WTI crude oil futures rose 1.5% to $76.91/bbl and natural gas futures fell 2.4% to $2.54/mmbtu.
The S&P 500 energy sector (-0.3%) continues to lag due in part to losses in Exxon (XOM 104.80, -1.69, -1.6%).
June budget deficit widens as F2023 YTD deficit grows past entirety of F2022
13-Jul-23 14:30 ET
Dow +42.80 at 34390.14, Nasdaq +194.85 at 14114.19, S&P +31.15 at 4504.58
[BRIEFING.COM] The major averages limped slightly higher following the release of the June Treasury Budget; to this point, the S&P 500 (+0.70%) is firmly in second place.
The Treasury Budget for June showed a deficit of $227.8 bln versus a deficit of $88.8 bln a year ago. The Treasury Budget data is not seasonally adjusted, so the June deficit cannot be compared to the deficit of $240.3 bln for May.
Total receipts of $418.3 bln fell 9.2% compared to last year while total outlays of $646.1 bln rose about 17.6% compared to last year.
The total year-to-date budget deficit now stands at $1.39 trln vs $515.07 bln at this point a year ago.
Gold slightly higher ahead of June budget data
13-Jul-23 13:55 ET
Dow +46.10 at 34393.44, Nasdaq +182.98 at 14102.32, S&P +28.39 at 4501.82
[BRIEFING.COM] With about two hours remaining on Thursday afternoon the tech-heavy Nasdaq Composite (+1.31%) holds a commanding lead atop the major averages.
Gold futures settled $2.10 higher (+0.1%) to $1,963.80/oz, aided in part by weakness in the greenback.
Meanwhile, the U.S. Dollar Index is down about -0.6% to $99.90.
As a reminder, the Treasury Budget for June will be released in about 5 minutes at the top of the hour.
Broader market feeling good and looking better
The stock market is feeling good about itself (again) and the proof is in the numbers. In just three trading sessions this week, the Russell 2000 is up 3.7%, the S&P Midcap 400 is up 3.1%, and the Invesco S&P 500 Equal-Weight ETF (RSP) is up 2.5%.
Note: we started with these broad market measures because the excitement about this week so far -- other than yesterday's pleasing CPI Report for June -- is that the gains have been broad based. Unlike other weeks through most of the first half of the year, the market-cap weighted S&P 500 is not up just because the mega-cap stocks are up. It is up because a lot of stocks are up, including the mega caps.
The broadening out of the buying is what market analysts have been pining for, and they are getting it this week. Actually, they got it last month, too, so it has been a welcome carryover trade into July and the third quarter, reflecting an ongoing belief that the economy will avoid a hard landing, that the Fed is close to being done raising rates, and that there will be a return to earnings growth in the second half of the year.
That sentiment has been aided this morning with better-than-expected Q2 results and guidance from Delta Air Lines (DAL) and PepsiCo (PEP), a drop in weekly initial jobless claims, and a weaker-than-expected Producer Price Index Report for June that translates into good news at this juncture because "weaker than expected" means good news on the inflation front.
Briefly, the Producer Price Index for final demand increased 0.1% month-over-month in June (Briefing.com consensus 0.2%) following a downwardly revised 0.4% decline (from -0.3%) in May. The index for final demand, less foods and energy ("core PPI"), also increased 0.1% month-over-month (Briefing.com consensus 0.2%) following a downwardly revised 0.1% increase (from 0.2%) in May.
On a year-over-year basis, the Producer Price Index for final demand was up just 0.1% while the Producer Price Index for final demand, less foods and energy, was up 2.4%.
The key takeaway from the report is that wholesale inflation pressures are clearly moderating, which should be a boon for profit margins for companies able to retain pricing power.
Initial jobless claims for the week ending July 8 decreased by 12,000 to 237,000 (Briefing.com consensus 247,000) while continuing jobless claims for the week ending July 1 increased by 11,000 to 1.729 million.
The key takeaway from the report is the understanding that initial jobless claims continue to run well below recession-like levels, reflecting a continued solid state for the labor market that is supportive of consumer spending growth and the soft landing view.
The reaction in the equity futures market has been more subdued than what was seen yesterday after the CPI report; however, the equity futures market had already recorded the bulk of this morning's gains in front of the PPI report, largely because there was an assumption that there would be friendly-looking PPI data as well.
Currently, the S&P 500 futures are up 17 points and are trading 0.4% above fair value, the Nasdaq 100 futures are up 115 points and are trading 0.8% above fair value, and the Dow Jones Industrial Average futures are up 66 points and are trading 0.2% above fair value.
The Treasury market also took the data in stride, showing a relatively muted reaction initially on the back of what has already been a strong move this week. Entering today, the 2-yr note yield was down 20 basis points for the week and the 10-yr note yield was down 19 basis points. Currently, the 2-yr note yield is down four basis points to 4.69% and the 10-yr note yield is down three basis points to 3.83%.
The drop in market rates this week has been another supportive factor for the broader equity market, which is also digesting news this morning that Exxon Mobil (XOM) will acquire Denbury (DEN) for approximately $4.9 billion, or $89.45 per share, in stock.
-- Patrick J. O'Hare, Briefing.com
Disney gives Bob Iger keys to Magic Kingdom for next two years as transformation progresses (DIS)
It doesn't stay quiet for very long at Walt Disney (DIS), especially lately, and that assertion is certainly holding true today. After yesterday's close, DIS announced that Bob Iger has agreed to stay on as CEO through December 31, 2026, following a surprise resignation from CFO Christine McCarthy about one month ago. When Mr. Iger returned to his CEO role in November of 2022, there was a sense of excitement on the hope that he would quickly fix the issues that are ailing DIS -- most prominently, the mounting losses for the streaming business, including Disney+.
However, as Mr. Iger acknowledged during an interview on CNBC earlier this morning, the challenges facing DIS have been more difficult than anticipated. This is reflected in the company's mixed financial performance and the stock's 2% loss since his return. While Iger has overseen a major improvement in profitability for the direct-to-consumer (DTC) segment, which saw operating loss shrink by $200 mln to ($700) mln last quarter, DIS's Linear Networks segment continues to be a thorn in Iger's side.
- On that note, Mr. Iger also disclosed during the interview that the company may sell some of its TV assets as they "may not be core to Disney" anymore. While he didn't specify which assets were under consideration, ABC and FX could both be on the chopping block.
- With DIS rapidly moving towards a streaming/subscription-based model, the possibility of the company dismantling its legacy TV network business would be fitting and would represent a major step in its transformation. There seems to be no end in sight to the cord-cutting trend that has battered the traditional TV market.
- Making matters worse, advertisers have cut back on their spending budgets due to macroeconomic headwinds. Amid this tough business environment, revenue for DIS's Linear Networks segment fell by 7% in Q2, while operating income plunged by 35%.
On the other end of the spectrum, the DTC segment is benefitting from the trend towards streaming services. Although Disney+ receives most of the attention, Hulu has also grown rapidly and is becoming a larger piece of the overall pie. In Q2, total Hulu subscribers grew by about 6% yr/yr to 48.2 mln. Currently, DIS holds an approximate 67% ownership stake in Hulu, with Comcast (CMCSA) owning the other third.
- Rounding off today's set of news, Mr. Iger also stated that he believes DIS and CMCSA will come to an agreement regarding DIS purchasing the remaining stake in Hulu. That syncs with the comments that CMCSA CEO Brian Roberts made in mid-May when he stated that “it's more likely than not” that CMCSA will sell Hulu in 2024.
- Exactly when a deal may be struck is uncertain. What is certain, though, is that DIS will have to shell out a massive amount of cash to purchase the rest of Hulu. When DIS purchased its initial stake in Hulu, part of the contract stipulated that the remainder of the streaming service couldn't be purchased for less than $9 bln. However, the actual purchase price is likely to be multiples higher than that -- perhaps in the neighborhood of $35-$40 bln, or more.
There's plenty of news for DIS investors to digest today, but the main takeaway is that the company is moving full steam ahead with its streaming transformation and Mr. Iger will continue to lead that charge over the next two years.
Conagra's initial pop on solid Q4 results fades as investors digest lingering headwinds (CAG)
After an initial pop following a Q4 (May) earnings beat and a 6% dividend increase, shares of Conagra (CAG) have since cooled off. Today's weakness reflects the broader trend, with shares of the consumer-packaged goods giant, operating familiar banners like Orville Redenbacher and Slim Jim, struggling this year, giving up just under 15% YTD.
Several factors are weighing on the stock today.
- CAG just squeaked out a beat on its bottom line in Q4, a stark contrast from the double-digit upside the company delivered in Q3 (Feb) and Q2 (Nov). Similarly, revs expanded by just 2.2% yr/yr to $2.97 bln, a deceleration from the 5.9% growth delivered last quarter to $3.09 bln.
- Volume recovery is lagging, suggesting new consumer behavior shifts beyond initial elasticity effects that coincided with pricing actions. The dynamic is broad-based across many categories. CAG added that it is not so much consumers trading down, but hunkering down, buying fewer items overall as higher prices weigh on budgets.
- Management discussed a few reasons why this trend is occurring. Travel is in high demand, taking a bite out of food-at-home consumption. Meanwhile, prices on some ingredients have started to come down, spurring corporate to make the appropriate price adjustments. Also, CAG anticipates a decline in contribution from Ardent Mills, a massive commercial flour mill, in FY24.
- As a result, CAG's FY24 adjusted EPS forecast of $2.70-2.75 missed analyst estimates, a significant blemish given that supply chain issues have been almost entirely resolved, with only a few pockets of disruptions occurring.
- For instance, service levels were at 95% to exit the quarter as fewer hiccups in the supply chain allowed CAG to rebuild its inventory. However, at the same time, CAG experienced a setback from one of its frozen logistics partner Americold, denting sales and earnings in Q4.
- The company's FY24 organic sales growth projection of approximately +1% yr/yr was also on the lighter side.
While headwinds remain an issue, CAG is still amid some nice tailwinds. The overall operating environment has mostly normalized, helping the company grow its adjusted gross margins over 200 bps yr/yr to 27% in Q4. Furthermore, although elasticities did soften slightly in Q4, they remained consistent and well below historical norms. CAG's brand investments also continued to pay off, driving another quarter of market share gains, tacking on nearly 500 bps in the frozen category, which, combined with snacks, represents around 70% of CAG's total domestic retailer dollar sales.
CAG's Q4 report was strong, highlighting its competitive positioning and relative brand loyalty. However, FY24 may be a challenging year, especially if current headwinds, mainly consumers reducing their basket sizes, do not abate.
Cintas reports another solid double-digit EPS beat but FY24 EPS guidance was a bit muted (CTAS)
Cintas (CTAS) is trading roughly flat after closing out FY23 with solid upside results. This morning, it reported another double-digit EPS beat with its Q4 (May) results with modest revenue upside. The main problem was its FY24 guidance.
We like to keep an eye on Cintas because it is a window into how businesses see their near term prospects. Cintas is best known as the largest supplier of work uniforms in the US, but it also gets more than half of its revenue from facility services (cleaning supplies, mops, first aid cabinets, PPE, fire extinguishers, alarms etc.)
- One of the best things about Cintas is its consistency. The company has now posted double-digit EPS beats in 17 of the past 18 quarters and has not missed in any quarter in the past five fiscal years. A potential concern is that investors have gotten spoiled with monster beats from Cintas, so that may be holding back the stock today somewhat.
- The Uniform Rental and Facility Services segment is by far the larger segment. Revenue grew 8.8% yr/yr to $1.77 bln, while other revenue jumped 15% yr/yr to $511 mln. CTAS noted that it was lapping its most difficult quarter of the fiscal year.
- Cintas reported a nice increase in margins with gross margin bumping up to 47.7% from 45.6% a year ago. Lower energy expenses (gasoline, natural gas and electricity) helped with margins. Cintas drives a lot of trucks around, so gas prices are important for them. This flowed down to operating margin, which improved to 20.6% from 19.5% last year.
- With the fiscal year ending, we got our first look at FY24 guidance. Cintas sees FY24 EPS of $13.85-14.35, nicely above adjusted EPS of $12.99 in FY23 and $11.28 in FY22. However, this EPS guidance is below analyst expectations. The FY24 revenue guidance was in-line although the mid-point was slightly below analyst expectations.
Overall, this was a solid report, but the stock reaction is pretty muted. We think the market had already priced in a sizeable EPS beat as that has been Cintas' history. At the same time, we think investors are not punishing Cintas too much for the downside EPS guidance. Cintas tends to be conservative with guidance and investors know that, so we think they are punishing them less than they would other companies. Also, the guidance assumes no share buybacks.
We are generally a fan of Cintas. Its business tends to be consistent and predictable. Also, Cintas benefits from the trend toward businesses wanting to outsource functions so that its employees can focus on their core business. Cintas' large size brings efficiencies that its clients cannot match. We also like Cintas' cross-selling opportunity. That is a big reason why Cintas has expanded beyond uniforms. It already had great corporate accounts, so it made sense to start selling them other products/services that businesses rely on. Finally, the stock is getting close to that $500 level, we had thought maybe a stock split might be announced with the new fiscal year starting, but that was not to be.
Delta Air Lines flies past high Q2 expectations on red-hot travel demand and normalizing costs (DAL)
With shares soaring by more than 30% since the beginning of June to their highest levels in over two years, Delta Air Lines (DAL) needed to deliver an exceptional 2Q23 earnings report to keep its stock from losing altitude. The airline did just that, issuing an impressive beat-and-raise report that featured record operating revenue and operating income of $15.6 bln and $2.5 bln, respectively.
- Macroeconomic headwinds, such as rising interest rates and high inflation, are simply no match for the red-hot demand that's only strengthening for air travel. An affluent customer base that's prioritizing travel and is willing to pay up for premium seats, combined with an ongoing shift in consumer spending towards services, are the main drivers underlying this robust demand environment.
- On the latter point, CEO Ed Bastian commented that there may easily be several years remaining before spending on services fully recovers and matches spending on goods.
- When airlines began to recover after the pandemic decimated the industry in 2020 and early 2021, it was rising domestic leisure travel demand that emerged first. Pent up demand for vacations and the return of events and celebrations such as weddings and anniversaries fueled that initial push. Corporate and international travel demand lagged behind as the impact of COVID-19 lingered, but now those soft spots have turned into another source of strength for DAL.
- In fact, international passenger revenue jumped by 61% yr/yr to a June quarterly record of $4.2 bln. Transatlantic revenue, which increased by 65%, was driven by strong U.S. consumer demand, while transpacific revenue growth of 175% was bolstered by the reopening of Japan and the performance of DAL's joint venture with Korean Air.
- Meanwhile, domestic corporate travel grew on a yr/yr basis once again in Q2 as travel budgets loosen up. When DAL reported Q1 results in mid-April, it stated that small and medium business bookings were fully recovered versus 2019 levels. Better yet, the company noted in this morning's earnings report that a recent corporate survey indicates that 93% of companies expect their travel spending to increase or stay the same in Q3.
- That trend holds true across the business for DAL with Mr. Bastian stating that overall bookings are showing "more of the same" of what he's seen all year, adding that "we're looking at a very, very strong Q3."
Strong demand is only part of the equation.
- Looking back, DAL missed EPS expectations in three of the past four quarters due to rising costs -- especially for labor and fuel -- as it rebuilt capacity. Now, however, non-fuel costs have reached an inflection point, with the rebuild mostly behind the company, according to CFO Dan Janki.
- After increasing by 2.4% in Q2, DAL is forecasting non-fuel CASM to decrease by 1-3% in Q3.
- Putting it all together, DAL sees a runway for strong earnings growth in FY23, raising its EPS guidance to $6.00-$7.00 from its previous expectation for EPS to come in at the high end of a $5-$6 range. The mid-point of this new guidance represents a yr/yr increase of 103%.
Lastly, DAL's performance sets the stage for more upside surprises from the airline industry with United Airlines (UAL) scheduled to report earnings on July 19, followed by American Airlines (AAL) on July 20 and Southwest Airlines (LUV) on July 27.
PepsiCo tops EPS and sales targets in Q2 on relatively stable volumes, fueling today's bounce (PEP)
PepsiCo (PEP) quenched investors' thirst for a bounce in the stock with its Q2 report, which demonstrated further consistency, underscoring the continual resilience of its brands despite stubbornly high prices. After shares of the food and beverage giant reached 52-week highs in early May, shortly after last quarter's upbeat results, they quickly fizzled, sliding over 6% leading into today's Q2 report. General Mills' (GIS) weakening volumes in MayQ and mass merchants like Walmart (WMT) and Costco (COST) boasting solid private label growth in grocery in AprQ sparked concerns that national brands may be experiencing meaningful trade down.
Therefore, PepsiCo's double-digit earnings beat and sales growth in Q2, as well as its raised FY23 guidance, expecting adjusted EPS expansion of +12%, up from +7%, and organic revenue growth of +10%, up from +8%, is alleviating much of these prior concerns, triggering today's positive response.
- Consolidated volumes held up in the quarter, with Convenient Foods and Beverages falling just 3% and 1%, respectively, mostly consistent with volumes delivered during the preceding two quarters. In PepsiCo's primary North American market, Frito-Lay volumes were up 1.0%, Quaker Foods down 5.0%, and Beverages down 4.5%, resembling figures from 1Q23 and 4Q22.
- International volumes were a mixed bag. Notable weaknesses stemmed from Africa, the Middle East, and South Asia, where food and beverage volumes contracted by 6% and 3%, respectively.
- In China and surrounding regions, food volumes fell 4% while beverages grew 7%.
- Latin America and Europe saw opposing volumes, with food dropping 3% in Latin America but jumping 2% in Europe, while beverages tacked on 2% in Latin America but edged 1% lower in Europe.
- Although private labels exist within PepsiCo's core categories, explaining why volumes still slipped on a consolidated basis yr/yr, consumers are not flocking to the Pepsi and Dorito substitute in droves, reflecting excellent brand loyalty, which is keeping elasticities low.
- As a result, PepsiCo's price hikes have not encountered meaningful pushback, helping revenue climb 10.4% yr/yr and 13.0% on an organic basis to $22.32 bln.
- Meanwhile, supply chain disruptions have eased considerably, evidenced by a better flow of materials and an improving labor market, paving the way for a 44 bp expansion yr/yr in adjusted operating margins in Q2. As a result, PepsiCo topped earnings estimates with ease, registering its second consecutive double-digit EPS beat and fourth over the past five quarters.
- The positive trends witnessed in Q2 fueled PepsiCo's raised FY23 outlook. When asked about the health of the end consumer, CEO Ramon Laguarta commented that although lower-income consumers are optimizing their budgets, most consumers stay within PepsiCo brands, noting that marketing has been a major force in minimizing elasticities.
Bottom line, PepsiCo is proving that its brands are less prone to trade down, a testament to its top-notch marketing campaigns and how embedded its brands are across many global markets and cultures. As such, PepsiCo acts as a solid defense against potentially worsening economic conditions.
Finally, PepsiCo's Q2 results are a good sign ahead of rival Coca-Cola's (KO) Q2 report on July 26.
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