EU CONSUMER STAPLES: Pepsi; 3Q Results
(PEP; A1/A+)
NA Food - parent of brands like Lay's, Doritos & Cheetos - is now onto its 7th straight quarter of organic falls with YTD profit -7% (after a -9% fall last year). It makes up 40% of Pepsi's bottom line. Perhaps Activist Investor, Elliot, can help it fix the issues. It still views salty snacks as an "attractive industry", despite double digit penetration of GLP-1 in the US, and is instead pushing for brand divestitures under the smaller Quaker foods segment (cereals/rice/pasta, ~3% of group EBIT) to fund bolt-on into higher growth segments.
- 3Q organic revenue +1.3%, YTD +1.5%
- 3Q: NA foods -3% (volume -4%), NA Beverages +2% (v -3%), EMEA Bev +5.5% (Bev. volume +1.5%), LATAM Food +4%
- 3Q EBIT margin 14.9% (-230bps) or -8% y/y; adj. for restructuring & acquisition expenses 17.3% (unch)
- On adj. basis: NA food EBIT -4%, NA Bev. -7%, EMEA Bev +3%, LATAM foods +9%
- Adj. EPS -2% for the quarter, leaving YTD -3.5%
FY guidance unch:
- LSD organic revenue increase
- Adj. EPS flat
- Shareholder returns $8.6b (consensus ~$8b in FCF)
- Generated $3b YTD (vs. $3.3b LY); net of acquisitions (Poppi + Siete) FCF just $0.2b vs. $3.2b LY.
- We see net debt at $43b, up from $36b last year, nudging leverage to ~2.2x (from ~2.0x)
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US 10YR FUTURE TECHS: (Z5) Bull Cycle Remains In Play
- RES 4: 114-10 High Apr 7 (cont.)
- RES 3: 114-00 Round number resistance
- RES 2: 113-26+ 2.764 proj of the Jul 15 - 22 - 28 price swing
- RES 1: 113-21+ High Sep 5
- PRICE: 113-13+ @ 12:29 BST Sep 9
- SUP 1: 112-28+/112-11+ Low Sep 5 / 20-day EMA
- SUP 2: 111-26+ 50-day EMA
- SUP 3: 111-13+ Low Aug 18 and a key support
- SUP 4: 110-25 Low Aug 1
Treasury futures rallied sharply higher last Friday and the contract remains closer to its recent highs The move higher highlights an acceleration of the uptrend. Note too that moving average studies are in a bull-mode position, highlighting a dominant uptrend. This paves the way for an extension through 113-21 next (pierced), the 2.618 projection of the Jul 15 - 22 - 28 price swing. Initial firm support to watch is 112-11+, the 20-day EMA.
FOREX: USDJPY Approaching Bear Trigger amid Hawkish BOJ Rhetoric
- The Japanese yen continues to lead gains across G10 currency markets, bolstered by the relatively hawkish BOJ comments earlier in the session and the broad weakening of the dollar following the US employment report last week.
- USDJPY sits 0.66% lower on the session in sympathy, narrowing the gap substantially to a key short-term support at 146.21, the Aug 14 low and bear trigger. Short-term positioning dynamics may have assisted the move lower, after an aggressive pop higher for USDJPY on Monday following PM Ishiba’s resignation may have put pressure on shorts.
- A break of this level would highlight a stronger bearish threat and initially expose 145.86 (Jul 24 low) before 145.40, a Fibonacci retracement.
- Yen demand has also prompted an impressive turnaround for EURJPY. The cross traded within 6 pips of key resistance and the bull trigger at 173.97 on Monday, but now resides around 1% lower at 172.22. Key support at the 50-day EMA moves up to 171.15.
- The focus for the duration of Tuesday trade rests on the annual benchmark payrolls revisions - which are expected to be marked notably lower for the 12 months into March - helping bolster the Oval Office's case for a more aggressive approach to monetary easing from the Fed.
OUTLOOK: Price Signal Summary - S&P E-Minis Bull Cycle Intact
- In the equity space, a bull cycle in S&P E-Minis remains intact and the latest pullback has once again proved to be a shallow correction. The contract traded to a fresh cycle high last week, breaching the Aug 28 high of 6523.00. This confirms a resumption of the uptrend and maintains the price sequence of higher highs and higher lows. Sights are on 6543.75 next, a 2.00 projection of the Apr 7 - 10 - 21 price swing. Initial support to watch is 6456.35, the 20-day EMA.
- A corrective bear cycle in EUROSTOXX 50 futures remains in play. Recent weakness resulted in a breach of 5368.87, the 50-day EMA. The clear break of this average strengthens a short-term bearish threat and signals scope for a deeper retracement towards 5166.00, the Aug 1 low and a key support. On the upside, initial resistance to watch is 5377.49, the 20-day EMA. It has been pierced, a clear break of it would be a bullish development.
