VIDEO: Why We’re Waiting on This Holding's Earnings Call

In today’s Daily Rundown video, Chris Versace offers an initial reaction to PepsiCo’s PEP mixed September quarter and what he’ll be listening for on the company’s earnings call.

"They delivered what we would call a mixed quarter," he says. "We'll have a lot more about PepsiCo later today."

Chris also explains how comments from Fed officials set the tone for more on Tuesday and how we’ll be gauging the market’s reaction to those comments and the next update of the Atlanta Fed’s GDPNow model. With General Motors’ GM Capital Market Day on Tuesday, Chris shares why we’ll be listening to the event with an eye toward the Portfolio’s position in Eaton ETN.

And, lest we forget, Tuesday kicks off Amazon’s AMZN Prime Big Deal Days event and Chris shares what we’ll be paying attention to around that and why.

Transcript

CHRIS VERSACE: Hey, everyone. Chris Versace here, Tuesday, October 8. We've got a kind of busy day today. I hate to say that to you, but the fact is we do. We've got quarterly results out this morning from PepsiCo that were a little mixed. We've got another wave of Fed speakers coming our way, but we've also got the capital markets day from General Motors and, of course, the start of Amazon's latest Prime Day event. Let's get to it.

Right out of the gate, let's talk about PepsiCo. This is one of the positions we have in the portfolio that's kind of tied to consumer spending. And it's, as a result, something that we've been watching closely as it relates to the monthly retail sales data. And we have seen a shift back in consumers towards grocery as the pain told, if you will, of eating out and higher prices has kind of finally been felt, I guess.

But here's the thing for PepsiCo. They delivered what we would call a mixed quarter. Bottom line was better than expected; top line shy of expectations. They're continuing to deal with the Quaker issues that we've talked about in recent quarterly earnings. But those issues are getting a little bit better. The big issue for folks is going to be the slight volume decline at Frito-Lay and Pepsi North America, but also to the company dialing back its organic sales expectation.

It had been around 4%, and it's looking like it's going to be a low single digit. We'll call that 1%, maybe 2%. However, PepsiCo reiterated that it continues to see 8% core EPS sales gains this year. Now, we're ahead of the company's earnings call, and we're going to want to dive into that, listening for what we talked about yesterday as our point of focus-- margins, margins, margins.

To the extent that the company can continue to deliver better than expected margins and EPS growth even while it's contending with lower volumes, in our view, that's a long-term positive for the business and the shares as volume eventually returns. That should mean even greater EPS dropping to the bottom line. That's our thinking, but we want to hear that confirmed on this morning's earnings call. So we'll have a lot more about PepsiCo later today.

I will say this, though, that you might notice that the reaction in the share price, at least so far, isn't all that dramatic. I think that's largely because PepsiCo shares, as you've probably noticed, have traded off over the last several days. Had they not, we would likely see a more impactful reaction in the shares. But again, they have traded off.

So how much further they fall from the 165, 166 level, we will see. Again, it's going to be based on the earnings call. And of course, based on the earnings call, we will have some updated thoughts that we'll be sharing with you in an alert later today.

Just a couple of other things that are going on. As I mentioned, we do have another wave of Fed speakers today. And I will say that really no surprise to us coming off the two things that I mentioned about last week and yesterday's video. I'm referring to the September ISM services PMI and, of course, the stronger-than-expected September employment report. The wave of Fed speakers we saw yesterday were kind of signaling a more measured approach to rate cuts. We have more Fed speakers today, and I suspect that they're going to reiterate that.

Remember that we will also get today the updated rolling GDP forecast from the Atlanta Fed, and that should tick higher. It had been at 2 and 1/2% last week, ahead of those two data points that we got on Thursday and Friday. That is going to lead to another positive revision, and I think that is going to help some of these Fed speakers continue to say the Fed is likely to be a little slower than expected. We'll have to watch the 10-year Treasury yield and the fallout for those comments.

But remember what I said yesterday-- to the extent that we are getting more comments like this and the market has to readjust or recalibrate its expectation for Fed rate cuts, we are going to see more interest rate-sensitive areas like our Builders FirstSource, United Rentals. Those names probably trade off. Yesterday we shared levels at which we would be interested in potentially picking up more shares, as well as good levels for newer members to initiate a position in those shares. So please refer to that alert from yesterday, again, regarding Builders FirstSource, United Rentals, Vulcan Materials, and Waste Management.

At the same time, we are watching Hurricane Milton, which overnight was downgraded to a Category 4 but is expected to strengthen further and is expected to hit Florida very early tomorrow morning. So call it early hours on Wednesday. It's going to hit areas that Helene just hit. And I think it's going to be a medium to longer-term positive for those companies that I just mentioned as rebuilding efforts unfold.

It's going to take a little time, and I suspect that as we move through the next crop of companies reporting that are construction related, we're going to hear and get some color about the impact of Helene and Milton. We'll also want to be paying close attention for other hurricanes that might be making their way and any incremental destruction that they might have. Of course, our thoughts are with everyone that are contending with the fallout of Helene and are prepping for Milton.

One last thing. General Motors, we don't have it in the portfolio. We're not really exposed to the automotive space, but we are rather curious to hear what it has to say regarding not just overall automotive demand, but the transition to EVs and any comments about the EV charging network. And I say this because remember, when we put Eaton into the portfolio, it was primarily because of the electrical power shortage that we foresee coming, largely due to data centers, but there are other areas that could contribute to that.

EV charging and the eventual buildout of a national network could be another one of those headwinds-- sorry, tailwinds for Eaton because the robust buildout of data center, EV charging network, and, of course, other growing demands for electricity are all going to pressure the grid that's going to foster demand for Eaton. So we'll be listening kind of indirectly from what General Motors has to say about that.

And then finally, folks, remember, today is the kickoff for Amazon's Prime Big Deal Days. It's going to be a two-day event. We continue to think it's going to pull forward the holiday shopping season, just like it did last year. There are a variety of competing events from the likes of Walmart, Target, Lowe's, and so on. So I do think that we're going to see a little bit of a pop in the eventual October retail sales report, primarily digital, but we'll see.

And I think that is going to be a very nice catalyst for Amazon. I suspect they will have some bragging comments out later this week, setting the tone for their upcoming quarterly earnings report. As we get those facts, we get those figures, we'll be sharing our thoughts with you. We'll be comparing it to what we saw from Big Deal Days last year. But we'll also be sizing up comments from others as well.

Remember, given our cash-strapped-consumer theme, I do suspect that we're going to see a number of folks kind of pull forward. Like I said, the holiday shopping season, we are likely to see a number of good results from these retailers that are participating. If we do not, that is going to send another message about the consumer, which, as we know, is increasingly selective, choosy. Use your words, but you understand what I'm saying.

So with all of that, folks, I'd say, please continue to check your emails, check your alerts. We are going to have some comments coming later today on PepsiCo, but some other ones as well. And remember, folks, we've got our office hours today in the forum. You can march on over there. We'll be answering all your questions about the market, the portfolio, the economy, maybe some other stuff as well, between 4:00 PM and 5:00 PM today. I hope to see you there.

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At the time of publication, TheStreet Pro Portfolio was long PEP, ETN and AMZN.