Retail stock under pressure: PepsiCo, Inc. (NASDAQ: PEP)

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PepsiCo, Inc. (NASDAQ: PEP) stock lost over 1.2% in the pre-market session of July 14th, 2020 (Source: Google finance). During the second quarter of 2020, the firm’s organic revenue rose 3.3% during the first half of this year, but fell 0.3% during the second quarter of 2020. Even though the firm’s global snacks business delivered 5% organic revenue growth, global beverages business lost 7% on the back of fall in the convenience and gas and away-from-home channels.

The group’s core North America Beverage business, did not perform well with Organic revenue falling 7% despite rise in consumption in grocery, mass and dollar stores. The firm’s Core operating profit fell on the back of rising COVID-19 related costs, including expenses for employee safety, sanitization and frontline incentives, lower volume and unfavorable channel mix dynamics. However, going forward, the firm expects its overall business to stabilize, assuming the COVID-19 related disruptions in the market would decrease. They also expect snacks and foods businesses to remain resilient, while beverages business is expected to deliver better performance during the second half of this year.

As per the International market, the snacks and foods businesses has delivered an organic revenue growth of 2% in snacks, while beverages showed 5% fall in beverages. Organic revenue’s in Germany, Australia and UK showed rise of 18%, 9% and 3% respectively. In developing and emerging markets, organic revenue rose 30% in China, 8% in South Africa, 7% in Brazil and 3% in Mexico. SodaStream business witnessed double-digit net revenue growth due to in-home consumption rise.

The group’s core operating margin fell over 200 basis points during the second quarter of 2020 as they incurred $400 million of incremental COVID-19 related costs. Frito’s core operating margin was also under pressure with COVID-related costs, but excluding these COVID-related costs, Frito’s core operating margin rose by 185 basis points. Quaker Foods organic revenue rose 23% yoy driven by solid performance across multiple categories with rising breakfast occasions, in-home dinners, and baking occasions. Subsequently, Quaker’s operating profit rose 55% during the quarter as solid operating leverage drove a 600 basis point improvement in its operating margin.

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