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Pepsi (PEP) Tops Q4 Earnings Estimates, Guides Below Market

PepsiCo, Inc.PEP reported better-than-expected results in fourth-quarter 2016 (ending Dec 31), with earnings beating the Zacks Consensus Estimate and revenues missing the same.

Moreover, this Purchase, NY-based food/beverage giant provided its full-year 2017 earnings guidance.

Earnings

PepsiCo's fourth-quarter core earnings per share (EPS) of $1.20 beat the Zacks Consensus Estimate of $1.16 by 3.4%.

Earnings rose 13.2% year over year despite the adverse impact of currency headwinds on sales. Also, currency hurt earnings by 3%. In constant currency terms, adjusted earnings grew 15% on strong margins and decent sales growth.

Notably, core earnings exclude restructuring and impairment charges and also commodity mark-to-market net impact. Including this item, reported earnings came in at 97 cents per share, down 17% year over year.

Full-year 2016 core EPS came in at $4.85, beating the Zacks Consensus Estimate of $4.80 and increasing 6% year over year. At constant currency, adjusted earnings grew 9%.

Sales

Total sales improved 5% year over year to $19.52 billion. Foreign exchange (Fx) hurt revenue growth by 2% while the 53rd reporting week had a 3.5% positive impact on sales. Revenues however missed the Zacks Consensus Estimate of $19.61 billion by 0.5%.

Excluding the impact of Fx and the 53rd reporting week, revenues increased 3.7% on an organic basis, primarily driven by higher demand for beverages and food/snacks in Latin America and Asia, Middle East and North Africa ("AMENA"). However, organic sales growth was lower than the 4.2% rise recorded in the previous quarter.

Total volumes grew 2%, same as the previous quarter. While organic snacks/food remained on par with the last quarter, growing 3%, beverage volumes were softer in comparison, rising 1% (compared with 2% in the previous quarter).

Full-year 2016 revenues were $62.79 billion, down 0.4% year over year but almost in line with the Zacks Consensus Estimate of $62.78 billion.

Quarterly Segment Details

Organic food/snacks volumes grew 1% at the Frito-Lay segment, softer than 1% growth seen in the last quarter. Organic volumes improved 1% at Quaker Foods , another American snacks business, against the decline of 2% recorded in the previous quarter. Organic snacks volumes rose 4% at the Latin America segment (higher than 3.5% in the previous quarter) and 8% in AMENA (softer than 10% growth in the last quarter). Organic snacks volumes rose 3% at the Europe Sub-Saharan Africa ("ESSA") segment, same as the last quarter.

Organic beverage volumes rose 1% in ESSA, down from last quarter growth of 2%. It declined 3% in Latin America, same as last quarter. In AMENA, beverage volumes grew 3%, softer than 5% growth registered in the previous quarter.

Margins

Core gross margins contracted 25 basis points (bps) owing to effective revenue management strategies and productivity gains.

Core constant currency operating profit rose 15% despite the negative impact of foreign exchange translation. Core operating margins rose 90 bps on increased gross margin gains.

Financials

Cash and cash equivalents were $9,158 million as of Dec 31, 2016, up from $9,096 million as on Dec 26, 2015. Long-term debt was $30,053 million at the quarter-end, up from $29,213 million as on Dec 26, 2015.

Net cash from operating activities were $10,404 million in 2016, down from $10,580 million a year ago.

2017 Guidance

Core earnings are expected to increase to $5.09 per share, lower than the Zacks Consensus Estimate of $5.16. However, this implies 4.9% year-over-year growth.

Excluding headwinds from currency and structural changes, organic revenues are expected to rise 3%. Currency is projected to hurt revenues by 3%, while the 53rd week in 2016 is expected to hurt sales by 1%.

Also, management plans to return $6.5 billion to shareholders through dividends and share repurchases. Free cash flow is estimated at around $7 billion.

Pepsico, Inc. Price, Consensus and EPS Surprise

Pepsico, Inc. Price, Consensus and EPS Surprise | Pepsico, Inc. Quote

Peer Releases

Dr Pepper Snapple Group Inc. DPS reported fourth-quarter 2016 results wherein earnings missed the Zacks Consensus Estimate and revenues met the mark. Fourth-quarter adjusted EPS of $1.04 missed the Zacks Consensus Estimate of $1.06 by 1.9%.

The Coca-Cola Company's KOfourth-quarter 2016 adjusted earnings were 37 cents per share, which beat the Zacks Consensus Estimate of 36 cents by 2.8%.

Upcoming Peer Release

Monster Beverage Corp. MNST is expected to report its quarterly results on Feb 23.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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