Varun Beverages shares in green after PepsiCo's Q1 results beat estimates

Stock market today: Shares of Varun Beverages were trading in positive territory on the BSE in Wednesday's morning deals after PepsiCo, which is one of its largest franchisees, reported better-than-estimated first-quarter results. 

The profit and revenue of the company grew on the back of demand for its sodas and snacks, like Cheetos and Doritos, in international markets, even as it witnessed a slowdown in the United States.

As per Zee Business research, the volume grew in the high single-digit range for the beverage segment and double digits for the snack segment. Furthermore, the company's market share in the snack segment increased.

As per Reuters, the company's average prices jumped five per cent in the first quarter. International businesses accounted for about 40 per cent of PepsiCo's fiscal 2023 revenue, while its North American businesses accounted for the remainder.

Management Commentary 

Consistent with its previous guidance for 2024, the company continues to expect: 

>>At least a four per cent increase in organic revenue;

>>At least an eight per cent increase in core constant currency earnings per share;

>>A core annual effective tax rate of 20 per cent;

>> Total cash returns to shareholders are approximately $8.2 billion, comprised dividends of $7.2 billion and share repurchases of $1.0 billion.

In addition, the company continues to expect an approximate one-percentage-point foreign exchange translation headwind to impact reported net revenue and core EPS growth based on current market consensus rates. 

This assumption and the guidance above imply 2024 core EPS of at least $8.15, a seven per cent increase compared to 2023 core EPS of $7.62.

Analysts' views 

Independent market expert Ambareesh Baliga believes that PepsiCo's Q1 result is positive for Varun Beverages and that there can be an upside in the stock with an increase in volumes. 

Recently, global brokerage firm Morgan Stanley initiated coverage on the leading bottler of beverage major PepsiCo with an 'overweight' rating. The brokerage set the target price at Rs 1,701 apiece.

Why are PepsiCo results important for Varun Beverages? 

Varun Beverages holds one of the largest franchisees of PepsiCo in the world (outside the USA). It has been associated with PepsiCo since the 1990s and has over two and a half decades consolidated its business association with PepsiCo, increasing the number of licensed territories and sub-territories covered by the company, producing and distributing a wider range of PepsiCo beverages, introducing various SKUs in the portfolio, and expanding the distribution network.

Varun Beverages share price: Past performance 

In a year, shares of Varun Beverages have gained over 98 per cent as against Nifty50's rise of 26 per cent.

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