What's going on?
On Tuesday, PepsiCo’s stock dropped by 2%. It had a better-than-expected quarter but warned investors its annual profit wouldn’t be as fizzy as hoped.
What does this mean?
Investors were focused on Pepsi’s business in North America where, in quarters past, the growth of its drinks business had been on the slide – partly thanks to consumers ditching sodas for healthier options. But Pepsi came good – drink sales in North America were over 2% higher than a year ago. And the company’s quarterly profit beat investors’ expectations, too.
Pepsi said it’s not planning cannabis investments like its arch-rival Coca-Cola (which is considering infused drinks) and beer company Constellation Brands (tweet this). Pepsi also cautioned that currency fluctuations would hurt this year’s profit going forward (more below) – likely sending its shares down.
Why should I care?
The bigger picture: Healthy and happy helped PepsiCo.
The trend of consumers favoring health and wellness-centered products – including in food and drink – looks bright-eyed and bushy-tailed. Pepsi’s snap back to growth in North America was helped by the company launching premium bottled water brand Lifewtr and sparkling water brand Bubly – while its sports drink brand, Gatorade, welcomed healthier options to the fold. In August, PepsiCo announced a deal to buy SodaStream, which it likely hopes will bring the company healthy growth in the future.
For markets: A strong dollar can hurt US companies’ profits.
The US dollar has bubbled up this year, partially thanks to a strong economy – demand for products is up, pushing their prices higher (along with interest rates), and indicating to investors that the US could be a good place to park their cash. A strong dollar (as investors buy the dollar, its value rises) can help the US economy grow more – since its currency goes further abroad (imports are cheaper). But for companies, like PepsiCo, that turn their foreign profits into dollars, a strong dollar means that foreign cash buys less stateside – hampering their financial results.