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The Numbers Behind the Smoke and MirrorsSo, PepsiCo beat its Q3 earnings estimates. Let’s... The Numbers Behind the Smoke and Mirrors
So, PepsiCo beat its Q3 earnings estimates. Let’s all stand up and give a slow, sarcastic clap for the corporate machine that managed to step over a bar so low it was practically a crack in the pavement. They reported adjusted earnings of $2.29 per share, squeaking past the $2.26 Wall Street pencil-pushers expected. Revenue was $23.94 billion, just a hair above the $23.85 billion consensus. The stock popped. Executives probably high-fived.
Give me a break.
Celebrating this is like congratulating a quarterback for throwing an interception that didn’t get returned for a touchdown. It’s a masterclass in focusing on the one shiny object in the room to distract you from the fact that the building is on fire. Because when you actually read the report, past the headline that every finance bro on Twitter will parrot—something like PepsiCo earnings top estimates as international markets fuel sales growth—you see the real story. And the real story is ugly.
Global food and beverage volume? Down 1%. Let me translate that from spreadsheet-ese into English: People are buying less of their stuff. It gets worse. In their most important market, North America, the bleeding is obvious. The division that includes Doritos and Quaker Oats saw its volume drop a staggering 4%. The beverage side, you know, the part with the actual Pepsi in PepsiCo, saw a 3% volume drop.
This isn't a victory. This is a five-alarm dumpster fire. No, 'dumpster fire' doesn't cover it—this is a company actively shrinking in its home turf, and they're papering over it by jacking up prices. How long can you squeeze more money out of fewer customers before they just walk away for good? What happens when people finally decide that a bag of artificially-colored corn chips just ain't worth seven bucks? They're playing a dangerous game of chicken with consumer loyalty, and I, for one, am grabbing my popcorn to watch.
Enter the Activist and the New Money Guy
If you think I’m just being a cynic, you don’t have to take my word for it. Just look at who’s knocking on their door. Activist investor Elliott Management—the corporate equivalent of the wolf from the Three Little Pigs—recently took a $4 billion stake in the company. These guys don’t invest that kind of cash to send a fruit basket. They’re here to shake things up because they see the same rot I do.
Elliott is pushing PepsiCo to streamline, to outsource its low-margin bottling business, and to sell off the dead weight like pasta and cereals. Their argument, in plain terms, is for Pepsi to stop pretending it can be everything to everyone and focus on the few things it does well. When PepsiCo puts out a statement saying it maintains an "active and productive dialogue" with shareholders, my cynical translator hears: "The screaming matches in the boardroom are getting really loud, but please don't sell your stock."
And right on cue, what happens? They announce a new CFO, Steve Schmitt, poached from the retail behemoth Walmart. Coincidence? Offcourse not. When a company under fire from an activist suddenly brings in a new numbers guy from a famously cost-cutting machine like Walmart, you can bet he’s not there to approve bigger budgets for the company picnic. He’s the hatchet man. He’s the guy brought in to make the "tough decisions" that will please Elliott and the rest of the Wall Street vultures, probably at the expense of everything else.
It’s the same tired shuffle we see over and over. A company falters, the investors get restless, and they just swap out one suit for another, hoping a fresh face can convince everyone the ship isn't sinking. But is a new CFO really going to convince people to start chugging more Mountain Dew? Does he have a magic plan to make Doritos cool again? Or is he just there to cut, cut, and cut until the balance sheet looks pretty for one more quarter?
So We're Just Ignoring Reality Now?
Look, I get it. The market is a game of expectations, not reality. PepsiCo played the game well this quarter. They managed expectations down, then barely cleared them, and got a gold star for it. But don't let them gaslight you into thinking this is a healthy company firing on all cylinders. The foundation is cracking. Fewer people are buying their core products in their biggest market. An activist investor is circling, smelling blood. A new numbers guy is coming in to clean up the mess. This earnings "beat" isn't a sign of strength; it's a beautifully crafted illusion, a magic trick to keep you looking at the rabbit while they saw the company in half backstage.