PepsiCo (PEP +6%) is seeing a nice move higher today after reporting its Q2 results this morning. This beverage and snack food giant returned to EPS upside after a rare miss in Q1. Revenue grew 1% yr/yr to $22.72 bln. While this number may be modest, it did mark a return to growth after declines in the last three quarters. Organic revenue rose 2.1%, accelerating from Q1's 1.2%. This is perhaps another cause for the positive reaction as PEP is effectively navigating through trade volatility, rising supply chain costs, and subdued consumer demand.
- PepsiCo's Foods North America (PFNA) segment, which includes Frito-Lay and Quaker Foods, saw sequential improvement in organic volume trends. Encouragingly, its savory snack segment, primarily Frito-Lay, saw organic volume trends improve despite a variety of headwinds last quarter.
- Another positive is that PEP saw improvement in its market share trends in subcategories like curls and puffs, variety multipacks, corn chips, and flavored tortilla chips.
- Investors have been closely watching its PepsiCo Beverages North America (PBNA) segment. Organic revenue rose 1%, with organic volume trends improving from the prior quarter. Its Pepsi brand gained market share in the soft drink and cola categories, with Pepsi-Zero delivering double digit volume and net revenue growth. The completed acquisition of Poppi is helping PEP reach younger consumers and health-conscious buyers looking for soda alternatives.
- Amid the pressures from higher supply chain and input costs, its pricing and productivity initiatives (automation, standardization and data analytics) helped PBNA grow its core operating margin during the quarter, while PFNA is expected to improve margins in 2H25.
- PEP's away-from-home business and international business were standouts this quarter. Away-from-home saw high single digit revenue growth and local restaurant share gains, while its international business delivered a 6% increase in organic revenue, its 17th consecutive quarter of at least mid-single digit growth.
The stock has been generally trending lower since October 2024 and the stock took a hit following its Q1 report. There are several positives this quarter that helped settle investors' nerves. And that helps to explain the out-sized move today. After hitting a low point in late June, shares have been climbing steadily and are extending those gains today. The return to EPS upside and top-line growth, along with the sequential improvements across key segments, is encouraging investors. Looking ahead, its main peer Coca-Cola (KO) is reporting next week (July 22).
GE Aerospace capitalizes on rising aircraft shop visits, delivers stellar Q2 report (GE)
GE Aerospace (GE) delivered a stellar 2Q25, handily surpassing Wall Street’s EPS and revenue expectations, while also raising its FY25 guidance for EPS and revenue growth. The beat-and-raise performance was propelled by broad-based strength across the organization, with the Commercial Engines & Services (CES) segment shining due to a 29% surge in services revenue, driven by a more than 20% year-over-year increase in shop visits and enhanced output. The growth in shop visits reflects robust air travel demand, as airlines extend the life of older, less fuel-efficient aircraft amid supply chain constraints limiting new plane deliveries, boosting aftermarket services as carriers prioritize maintenance to keep fleets operational.
- The CES segment showcased remarkable momentum, with orders soaring 28% to $11.69 bln, underpinned by both robust services demand and a 35% spike in equipment revenue. The equipment revenue surge was fueled by strong unit volume growth, particularly in LEAP engine deliveries, supported by improved supply chain dynamics and favorable pricing strategies. GE’s efforts to address supply chain bottlenecks through its FLIGHT DECK lean operating model have significantly enhanced material inputs, enabling higher production rates to meet airframer and airline demand.
- In the smaller Defense & Propulsion Technologies (DPT) segment, orders jumped 24% to $2.9 bln, reflecting strong demand in both Defense & Systems and Propulsion & Additive Technologies. Key drivers included significant contracts, such as a $1.1 bln order from the U.S. Army for T700 engine production through 2029 and commitments for T700 engines to power Poland’s anticipated acquisition of 96 Boeing Apache Guardian helicopters.
- The 38% increase in LEAP deliveries in Q2, primarily for commercial applications, indirectly supported DPT by freeing up production capacity and highlighting GE’s ability to scale output across segments despite ongoing supply chain challenges. These wins underscore GE’s growing footprint in global defense markets and its ability to capitalize on long-term contracts.
- GE raised its FY25 guidance, projecting adjusted EPS of $5.60–$5.80 (up from $5.15–$5.45) and mid-teens revenue growth, while also boosting its 2028 outlook to a double-digit revenue CAGR from 2024–2028 (previously high single-digit from 2025–2028) and operating profit of approximately $11.5 billion, compared to the prior $10.0 billion target. The upgraded 2028 forecast is driven by a robust commercial services backlog exceeding $140 bln, continued momentum in shop visits, and anticipated growth in LEAP and other engine deliveries as supply chain constraints ease. Investments in MRO capacity, including a $1 bln commitment over five years and the opening of a Services Technology Acceleration Center in Ohio, position the company to capitalize on aftermarket demand.
GE is firing on all cylinders, with robust demand in both commercial airline and defense markets driving exceptional performance. The company’s ability to navigate supply chain challenges while capitalizing on strong services and equipment growth underscores its resilience and strategic focus. With a burgeoning backlog and operational improvements via FLIGHT DECK, GE is well-positioned for sustained growth through 2028.
United Airlines posts mixed Q2 results, but upbeat 2H25 outlook lifts shares higher (UAL)
United Airlines (UAL) reported mixed 2Q25 results as EPS surpassed expectations while revenue narrowly missing estimates, reflecting strong cost control and operational efficiencies in the face of significant disruptions at Newark International Airport -- a major hub for UAL. The company also issued FY25 EPS guidance of $9.00–$11.00, aligning with consensus expectations but notably removing the recessionary-case guidance provided in 1Q25, signaling increased confidence in the macroeconomic environment. The company highlighted a robust demand recovery starting in July, with a 6-point acceleration in overall demand and a double-digit surge in business travel demand compared to Q2, suggesting a positive momentum shift heading into Q3.
- DAL set a high bar last week with a strong Q2 earnings report, beating both EPS and revenue expectations while restoring its FY25 guidance, reflecting operational resilience and robust demand. UAL’s performance, while solid, didn’t quite match DAL’s vigor. For instance, UAL’s total revenue per available seat mile (TRASM) declined 4.0% yr/yr, underperforming DAL’s 3.0% TRASM decline, highlighting relative weakness in pricing power.
- A significant drag on UAL’s results was a $218 mln financial hit from disruptions at Newark Liberty International Airport, which reduced Q2 margins by 1.2 percentage points. These disruptions, driven by air traffic control staffing shortages, equipment failures, and runway construction, forced UAL to cut 10% of its Newark schedule. CEO Scott Kirby expressed optimism about Newark’s recovery, noting that operational stability improved by June and that Federal Aviation Administration (FAA) interventions should prevent financial impacts in Q4.
- UAL’s TRASM performance deteriorated notably from Q1’s modest 0.5% increase. This downturn was primarily driven by a 5.9% increase in capacity, which outpaced demand growth and pressured yields in a soft domestic pricing environment. Domestic passenger revenue per available seat mile (PRASM) dropped sharply by 7.0%, reflecting competitive pricing pressures and an oversupply of seats.
- Internationally, PRASM weakened as well, with Europe down 3.5% and Latin America down 2.3%, impacted by currency fluctuations and uneven demand recovery. The Pacific region, however, emerged as a bright spot, with PRASM rising 2.9%, bolstered by strong demand for premium cabins and recovering travel to Asia.
- Capacity growth was a key factor in Q2, with available seat miles (ASMs) up 5.9% yr/yr, reflecting UAL’s aggressive network expansion to capitalize on demand recovery. However, this capacity surge contributed to the TRASM decline by diluting pricing power, particularly in domestic markets. To address this, UAL plans to moderate capacity growth in 2H25, targeting a low-to-mid-single-digit ASM increase for Q3 and Q4. This strategic pullback aims to tighten supply, stabilize yields, and drive TRASM higher, particularly in high-margin business and international segments.
- UAL’s FY25 EPS guidance of $9.00–$11.00, while in line with expectations, appears conservative given the Q2 EPS beat and the strong demand acceleration in July. However, Kirby noted that the guidance embeds a conservative outlook, with potential upside if demand trends -- particularly the double-digit business travel growth -- persist.
UAL delivered mixed 2Q25 results, but with Newark’s operational issues largely resolved and early Q3 demand showing significant strength, UAL’s conservative FY25 outlook offers potential upside, contributing to a favorable stock reaction as investors look past Q2 challenges toward a stronger second half.
ASML facing heavy pressure on weak guidance, dragging down industry peers
ASML (ASML -9%) is sharply lower today after releasing its Q2 results. This manufacturer of semiconductor equipment reported revenue growth of 23.2% yr/yr to €7.7 bln, which was a slight beat on expectations primarily due to one-time revenue recognition and business upgrades. The company handily beat on Q2 EPS expectations, its largest in over five years.
While the Q2 results were impressive, investors were clearly disappointed that ASML guided well below analyst expectations for both Q3 and FY25.
- In terms of why the guidance was weak, ASML said that customers are facing macro and geopolitical headwinds. Specifically, some customers are navigating specific challenges that may impact the timing of their cap-ex spend. Tariffs seem to have an impact on timing as well.
- These concerns prompted management to state, "while we are still praying for growth in 2026, we cannot confirm it at this stage." This comment seems to be adding to investors' concerns.
- Specifically, ASML now expects Q3 revenue between €7.4-7.9 bln and FY25 revenue to grow 15%, both are a good bit below expectations.
- ASML's weak guidance and cautious commentary is clearly raising concerns among investors about the semi cap equipment space heading into earnings season. As a result we are seeing some selling pressure in some of its peers like Applied Materials (AMAT -3%), LAM Research (LRCX -2%), and KLA Corporation (KLAC -2%).
While ASML's Q2 results were impressive, the cautious guidance/commentary for Q3 and FY25 are overshadowing the Q2 results. Investors appear concerned that other semi cap equipment names may have cautious outlooks as well when they report in the next few weeks. |
