Think of a company's culture first as the numbers roll in this earnings season. It may pay handsome dividends down the line.
I bring this up after stumbling on a stunning stat on PepsiCo in prepping for the company's earnings last week: PepsiCo hasn't missed analyst earnings estimates since 2009.
Let that sink in for a second. Despite all the ups and downs economically and politically around the world in 14 years, PepsiCo has basically not let investors down financially.
Remarkable!
I asked PepsiCo CFO Hugh Johnston about this otherwise crazy stat on Yahoo Finance Live 15 minutes after his earnings call ended (video above). His answer reinforced to me that there is more going on at PepsiCo than simply winning each quarter because it sells tasty soda and snacks to the masses globally.
"One, we have a great portfolio of snacks and beverages, so good-sized categories to start with. In addition to that, I think we have a team and a culture here at PepsiCo just continuing to steadily grow with the categories. Growth in many ways is a real value inside of PepsiCo. We all think growth. You put that culture together, and you get the stock chart you see," Johnston said.
He added, "I think the best days are in front of us, not behind us."
Spotting whether a company has a good culture is incredibly difficult. A company could have a terrible culture and still put up amazing results if the demand for the product or service is robust. On the other hand, good cultures don't always lend themselves to great results.
So how to spot a good culture driving good financial outcomes?
I really think starting point one is pulling up a simple 10-year stock chart. If the line basically goes up and to the right (as is the case with PepsiCo), chances are the company is doing something right. From there it's going to require a lot more digging on job review sites, such as LinkedIn and Glassdoor, and a heavy dose of ingesting analysts' research.
There are other ways I go about determining this as a journalist (such as watching how execs interact with people at conferences), but I am trying to make it easy for you investors at home.
A culture investigation should be standard operating procedure when researching a company and deciding what to do with the stock.
Because here is the rub right now: The stock market has run hard this year, and the performances of many companies won't live up to elevated expectations.
Second quarter earnings for the S&P 500 are seen as dropping 7.2% year over year, which would be the third consecutive quarterly decline. Energy, materials, and healthcare are forecast to show earnings declines of more than 20%.
Sales are projected to decline slightly, the first fall since the third quarter of 2020.
Net profit margins are barely expected to grow from the first quarter.
These numbers suggest not all companies are winning in a climate of meh economic growth, currency volatility, and inflation that still doesn't resemble the Consumer Price Index (CPI) deceleration celebrated last week.
We were reminded of this in the earnings from JPMorgan, Wells Fargo, and Citigroup on Friday. Mixed performances at best.
What companies do win in this environment? Culture champions in the mold of PepsiCo, and even a Delta that has displayed remarkably consistent execution under CEO Ed Bastian.
The losers: Everyone else.
Brian Sozzi is Yahoo Finance's Executive Editor. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn. Tips on deals, mergers, activist situations or anything else? Email brian.sozzi@yahoofinance.com
For the latest earnings reports and analysis, earnings whispers and expectations, and company earnings news, click here
Read the latest financial and business news from Yahoo Finance
