PepsiCo shares rally as Jim Cramer notes improving sales trends

PepsiCo shares rallied 3% Thursday after the beverage and snack giant cut its full-year profit growth forecast to a range of 2.5% to 3.5%, down from 5% to 7%. Investors focused on improving sales momentum and an earnings-guidance reduction that Wall Street had widely anticipated.

A Sharp September Slump Precedes the Rally

The company closed Wednesday at its lowest level since April 2020. Shares had fallen nearly 10% in September alone.

The drop was weighed down by rising inflation, oil prices, and interest rates. Ongoing Wall Street concerns regarding the impact of GLP-1 weight-loss drugs on snack consumption also pressured the stock.

Third-Quarter Revenue Beats Expectations

Despite the lowered outlook, third-quarter earnings and revenue beat expectations. Organic revenue grew 3.1%, topping the FactSet consensus estimate of 2.75%.

This marked the strongest performance since the fourth quarter of 2023. Meanwhile, the reported revenue growth forecast was raised to 6% from a prior range of 4% to 6%.

Wall Street Looks Past Reduced Profit Figures

CNBC’s Jim Cramer noted on “Mad Money” that the positive stock reaction stemmed from two primary catalysts. Improving sales trends and a pre-announced guidance cut allowed investors to look past the reduced profit figures.

Wall Street didn’t care about the lowered earnings forecast because everyone knew this was inevitable.

Cramer added that management chose to invest heavily in advertising, product innovation, and lower prices rather than holding back.

Urgent Steps to Fix North American Performance

Those spending initiatives pressured margins alongside higher fuel and packaging costs, but successfully drove revenue growth higher.

CEO Ramon Laguarta stated that the company is acting with urgency to improve North American performance while identifying additional cost reductions to fund growth initiatives. Organic revenue growth guidance for the full year was maintained at 3%.

Cramer Cautions That Secular Challenges Remain

Cramer cautioned that secular challenges remain for the snack maker, noting it is far too early to declare the company entirely out of the woods.

The stock trades at approximately 15 times the midpoint of its reduced earnings forecast and carries a dividend yield of about 4.61%.