Market Signal - July 12, 2024
Reports from Pepsico, Paychex, Conagra and Delta ;Consumer Price Index Report for June; Real Earnings Report for June; Unemployment Insurance Weekly Claims
In this issue:
Reports from Pepsico, Paychex, Conagra and Delta
Consumer Price Index Report for June
Real Earnings Report for June
Unemployment Insurance Weekly Claims
Remarks by Under Secretary for International Affairs Jay Shambaugh on Chinese Overcapacity and the Global Economy
PepsiCo, Inc. Quarterly Report (10-Q)
PepsiCo Inc.: Business Overview
PepsiCo Inc. is a global food and beverage company known for its diverse range of products, including snacks, beverages, and nutritional foods. The company operates through various segments such as Frito-Lay North America, Quaker Foods North America, PepsiCo Beverages North America, Latin America, Europe, Africa, Middle East and South Asia, and Asia Pacific, Australia/New Zealand, and China.
Financial Performance Summary
This document provides a comprehensive overview of PepsiCo’s financial performance for the 12 weeks ended June 15, 2024. Key financial metrics include revenue, cost of sales, gross profit, operating profit, net income, and earnings per share (EPS). The company reported a notable increase in revenue and EPS, indicating robust growth and effective cost management.
Revenue: $22.5 billion, a 0.8% increase from $22.3 billion in the same period last year.
Cost of Sales: $9.9 billion, a 2.0% decrease from $10.1 billion.
Gross Profit: $12.6 billion, a 3.1% increase from $12.2 billion.
Operating Profit: $4.0 billion, a 10.6% increase from $3.7 billion.
Net Income: $3.1 billion, a 11.7% increase from $2.8 billion.
Earnings Per Share (EPS): $2.24, up 12.6% from $1.99.
Notable Management Comments
Management highlighted the company’s strong revenue growth driven by increased demand and effective pricing strategies. They also emphasized the challenges posed by inflation and supply chain disruptions.
Financial Highlights and Concerns
Revenue: $22.5 billion, a 0.8% increase from $22.3 billion in the same period last year.
Earnings Per Share (EPS): $2.24, up 12.6% from $1.99.
Gross Profit: $12.6 billion, up 3.1% from $12.2 billion.
Operating Profit: $4.0 billion, a 10.6% increase from $3.7 billion.
Net Income: $3.1 billion, an 11.7% increase from $2.8 billion.
Cost of Sales: $9.9 billion, a 2.0% decrease from $10.1 billion.
Gross Margin: Gross profit increased by 3.1%, higher than the revenue increase of 0.8%.
Profit and Profit Margin
Net Income: $3.1 billion
Profit Margin: 3.122.5×100≈13.8%\frac{3.1}{22.5} \times 100 \approx 13.8\%22.53.1×100≈13.8%
Prior Year Profit Margin: 2.822.3×100≈12.6%\frac{2.8}{22.3} \times 100 \approx 12.6\%22.32.8×100≈12.6%
The profit margin improved from 12.6% to 13.8%.
Current Assets and Cash on Hand
Current Assets: $25.7 billion
Cash on Hand: $6.4 billion
Percent of Current Assets as Cash: 6.425.7×100≈24.9%\frac{6.4}{25.7} \times 100 \approx 24.9\%25.76.4×100≈24.9%
Prior Year Cash: $9.7 billion, making up 36.0% of current assets
Liabilities
Current Liabilities: $31.1 billion
Comparison to Current Assets: Current liabilities are 121.0% of current assets.
Free Cash Flow: $1.3 billion
Prior Year Liabilities: $31.6 billion
Cash from Operating Activities
Current Year: $1.3 billion, 5.8% of revenue
Prior Year: $2.0 billion, indicating a decrease in operating cash flow
The cash from operating activities decreased by $700 million, reflecting challenges in operational efficiency or increased working capital requirements.
(Source)
Paychex Inc. Annual Report (8-K)
Paychex Inc. is a leading provider of human capital management (HCM) solutions, offering a full suite of technology and advisory services in human resources, payroll, employee benefits, and insurance. The company serves over 745,000 clients across the U.S. and Europe, managing payroll for one in every twelve American private sector employees.
Financial Performance Summary
This document provides a comprehensive overview of Paychex’s financial performance for the fourth quarter and fiscal year ended May 31, 2024. The company reported solid revenue growth and operating margin expansion.
Revenue: Total revenue for the fiscal year was $5.28 billion, a 5.4% increase from $5.01 billion in the prior year.
Operating Income: Operating income for the fiscal year was $2.17 billion, up 6.9% from $2.03 billion.
Net Income: Net income for the fiscal year was $1.69 billion, a 8.5% increase from $1.56 billion.
Earnings Per Share (EPS): Diluted EPS for the fiscal year was $4.67, up 8.6% from $4.30.
Notable Management Comments
Management highlighted the company’s robust financial performance amidst challenging market conditions, emphasizing their success in delivering innovative HR technology and advisory solutions.
Financial Highlights and Concerns
Revenue: $1.295 billion for the fourth quarter, up 5.3% from $1.230 billion in the same period last year.
Earnings Per Share (EPS): $1.05 for the fourth quarter, up 8.2% from $0.97.
Cost of Revenue: $375.2 million for the fourth quarter, up 1.5% from $369.8 million.
Gross Margin: Increased from 36.9% to 37.2% in the fourth quarter.
Operating Profit: $481.8 million for the fourth quarter, up 6.3% from $453.3 million.
Net Income: $379.9 million for the fourth quarter, up 8.4% from $350.4 million.
Profit Margin: 29.3% for the fourth quarter, compared to 28.5% in the prior year.
Current Assets and Cash on Hand
Current Assets: $7.251 billion as of May 31, 2024.
Cash on Hand: $1.469 billion.
Percent of Current Assets as Cash: 1.4697.251×100≈20.3%\frac{1.469}{7.251} \times 100 \approx 20.3\%7.2511.469×100≈20.3%
Prior Year Cash: $1.222 billion, 16.2% of current assets.
Liabilities
Current Liabilities: $5.309 billion.
Comparison to Current Assets: Current liabilities are 73.2% of current assets.
Free Cash Flow: $1.638 billion.
Prior Year Liabilities: $5.805 billion.
Cash from Operating Activities
Current Year: $1.898 billion, 35.9% of revenue.
Prior Year: $1.706 billion, showing an increase in operating cash flow.
Conclusion
Paychex Inc. demonstrated strong financial performance with significant revenue and earnings growth, effective cost management, and improved profit margins. The company maintained a robust financial position with substantial cash reserves and manageable liabilities.
(Source)
Conagra Brands Inc. Quarterly Report (10-K)
Conagra Brands Inc. is a leading North American food company, known for its iconic brands like Birds Eye®, Marie Callender's®, and Healthy Choice®. The company produces and markets packaged foods, meals, snacks, and condiments.
Financial Performance Summary
This document reviews Conagra's financial performance for the fourth quarter and fiscal year ending May 26, 2024.
Fourth Quarter Highlights:
Net Sales: $2.91 billion, down 2.3% from last year.
Gross Profit: $805 million, similar to the previous year's $803 million.
Operating Margin: Reported at -19.1%; adjusted margin was 14.8%.
Earnings Per Share (EPS): Reported diluted loss per share was $1.18, adjusted EPS was $0.61.
Net Income: Reported net loss of $567 million.
Fiscal Year Highlights:
Net Sales: $12.05 billion, a decrease of 1.8% from last year.
Gross Profit: $3.33 billion, a rise of 2.1%.
Operating Margin: Reported margin decreased to 7.1%; adjusted margin was 16.0%.
EPS: Reported EPS dropped 49.3% to $0.72, while adjusted EPS decreased 3.6% to $2.67.
Net Income: $347 million, down 49.1% from the previous year.
Management Comments
Management highlighted successful investments in brands and supply chain productivity, contributing to volume improvements and gross margin expansion despite challenging industry conditions.
Financial Highlights and Concerns
Earnings Per Share (EPS): Adjusted EPS for the quarter was $0.61, slightly lower than $0.62 last year.
Revenue: $2.91 billion for the quarter, down 2.3%. For the fiscal year, $12.05 billion, down 1.8%.
Cost of Revenue: $2.10 billion for the quarter, down from $2.19 billion.
Gross Margin: Improved to 27.7% from 26.3%.
Profit and Profit Margin
Net Income: $347 million for the fiscal year.
Profit Margin: Declined compared to the previous year.
Current Assets and Cash on Hand
Current Assets: $3.15 billion
Cash on Hand: $77.7 million
Percent of Current Assets as Cash: Approximately 2.5%, down from 2.8% last year.
Liabilities
Current Liabilities: $3.24 billion
Comparison to Current Assets: Exceeds current assets.
Free Cash Flow: $1.63 billion
Prior Year Liabilities: $4.44 billion
Cash from Operating Activities
Current Year: $2.02 billion, an improvement over last year’s $995 million.
(Source)
Delta Air Lines Inc., Quarterly Report (10-K)
Delta Air Lines, Inc. is a major American airline, providing both domestic and international air travel services. As one of the largest airlines globally, Delta operates an extensive network of flights and offers various related services, including cargo transportation and travel-related services.
Financial Performance Summary
This document covers Delta's financial performance for the second quarter and the first half of 2024.
Second Quarter Highlights:
Net Sales: $16.7 billion, up 7% from $15.6 billion in the prior year.
Gross Profit: Operating income was $2.3 billion, down from $2.5 billion in the prior year.
Net Income: $1.3 billion, down from $1.8 billion.
Earnings Per Share (EPS): $2.01, down from $2.84.
First Half Highlights:
Net Sales: $30.4 billion, up 7% from $28.3 billion.
Gross Profit: Operating income was $2.9 billion, up from $2.2 billion.
Net Income: $1.3 billion, down from $1.5 billion.
EPS: $2.08, down from $2.28.
Notable Management Comments
Management highlighted the robust revenue growth driven by increased travel demand and higher capacity, particularly in the premium products segment. They also noted challenges such as increased fuel costs and higher employee wages impacting overall expenses.
Financial Highlights and Concerns
Earnings Per Share (EPS): For the second quarter, EPS was $2.01, a decrease from $2.84 in the prior year.
Revenue: $16.7 billion for the second quarter, up 7% from $15.6 billion. For the first half, revenue was $30.4 billion, up 7% from $28.3 billion.
Cost of Revenue: $14.4 billion for the second quarter, up 10% from $13.1 billion. For the first half, costs were $27.5 billion, up from $26.1 billion.
Gross Margin: Operating income for the second quarter was $2.3 billion, down from $2.5 billion, indicating a decrease in gross margin due to rising costs.
Comparison of % Change in Gross Profit and Revenue
Gross Profit: For the second quarter, gross profit decreased by 9%, while revenue increased by 7%.
Profit and Profit Margin
Net Income: For the second quarter, net income was $1.3 billion, down from $1.8 billion. For the first half, net income was $1.3 billion, down from $1.5 billion.
Profit Margin: For the second quarter, profit margin was 7.8%, down from 11.7%.
Current Assets and Cash on Hand
Current Assets: $11.6 billion as of June 30, 2024.
Cash on Hand: $4.1 billion.
Percent of Current Assets as Cash: Approximately 35.4%, up from 26.5% last year.
Liabilities
Current Liabilities: $28.8 billion.
Comparison to Current Assets: Current liabilities exceed current assets by 148%.
Free Cash Flow: $1.3 billion.
Prior Year Liabilities: $26.4 billion.
Cash from Operating Activities
Current Year: $4.9 billion, 16% of revenue.
Prior Year: $4.8 billion, showing a slight increase in operational cash flow.
Conclusion
Delta Air Lines, Inc. demonstrated solid revenue growth with increased travel demand and higher capacity utilization. However, rising costs, especially fuel and employee-related expenses, impacted profitability. The company maintained a strong liquidity position with substantial cash reserves.
(Source)
Consumer Price Index Report for June
In June 2024, the Consumer Price Index for All Urban Consumers (CPI-U) decreased by 0.1% seasonally adjusted, and increased by 3.0% over the past 12 months. Key changes included a 3.8% decline in gasoline prices and a 0.2% increase in food prices. The index for all items less food and energy rose by 0.1%. The energy index fell by 2.0% while the food index increased by 0.2%. The shelter index rose by 0.2%, contributing significantly to the overall increase.
For more detailed information, visit the BLS website.
Real Earnings Report for June
In June 2024, real average hourly earnings for all employees increased by 0.1% seasonally adjusted, reflecting a 0.2% rise in average hourly earnings and a 0.1% increase in the Consumer Price Index for All Urban Consumers (CPI-U). Real average weekly earnings rose by 0.3% over the same period due to the combination of higher earnings and longer average workweek hours. Over the past year, real average hourly earnings have increased by 0.6%.
For more detailed information, visit the BLS website.
Unemployment Insurance Weekly Claims
Initial claims for unemployment insurance filed by workers rose to 248,000 in the week ending July 1, 2023, an increase of 12,000 from the previous week. The four-week moving average was 240,000, an increase of 1,500 from the previous week's revised average. The advance seasonally adjusted insured unemployment rate was 1.2% for the week ending June 24, unchanged from the previous week. The advance number for seasonally adjusted insured unemployment during the week ending June 24 was 1,722,000, an increase of 1,000 from the previous week.
For more details, visit the Department of Labor's website.
Remarks by Under Secretary for International Affairs Jay Shambaugh on Chinese Overcapacity and the Global Economy
In his remarks, Under Secretary for International Affairs Jay Shambaugh addressed the issue of Chinese overcapacity and its impact on the global economy. He highlighted China's significant macroeconomic imbalances and non-market policies, which lead to overcapacity in sectors such as steel, solar panels, and electric vehicles. Shambaugh emphasized the negative global spillovers, including job losses and reduced wages, and advocated for international cooperation and policy responses to ensure fair competition and economic resilience.
For more details, visit the U.S. Treasury website.