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PepsiCo: Foreign Exchange, Low CSD Volumes Raise Caution

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On Dec 30, we issued an updated research report on PepsiCo Inc.PEP - one of the leading global food and beverage companies.

A volatile macro outlook, currency headwinds and persistent sluggish CSD volumes can limit PepsiCo's bottom line.

Notably, growing health and wellness consciousness - consumers are particularly vigilant about the use of artificial sweeteners, high sugar content and related obesity concerns - is hurting CSD category growth. Among CSDs, the cola segment has been particularly as affected by the shift in consumer preference for alternative beverage offerings. Pepsi's CSD volumes declined 2% each in 2014 and 2015 and 3% in the first nine months of 2016.

Foreign exchange (Fx) is a major headwind for Pepsi with around 40% of its revenues coming from outside the U.S. Though the dollar has weakened only slightly in 2016, the negative currency impact is quite significant. Currency headwinds are expected to hurt 2016 revenues by 3%.

This Zacks Rank #4 (Sell) company's current quarter has seen two estimates move down over the last two months compared to none moving higher. Meanwhile, fiscal 2017 estimates have seen one downward revision and no upward movement in the same time frame. However, earnings estimates trend have remained flat for the current quarter as well as year.

Meanhwile, Pepsi's diverse portfolio, aggressive marketing, productivity improvement and cost-saving initiatives lend some optimism. In fact, the company expects core earnings to increase to $4.78 per share, higher than $4.71 expected previously.

On the other hand, although Pepsi performed well in the third quarter in the emerging markets category, these markets have become increasingly volatile due to fluctuating currencies and other structural issues.

Slower economic growth in many developing/emerging markets, notably Brazil, Russia and China, has affected the demand for commodities. Deterioration in key emerging markets is reducing personal expenditures as well as industry growth, which in turn, is hurting the demand for the company's products.

Other Stocks to consider

Better-ranked stocks in the consumer staples sector include B&G Foods, Inc. BGS , Dean Foods Company DF and Lancaster Colony Corporation LANC .

B&G Foods and Dean Foods sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today's Zacks #1 Rank stocks here.

For full-year 2016, B&G Foods' EPS is expected to grow 42.2%.

Dean Foods' 2016 EPS is expected to improve 31.3% in 2016.

Lancaster's - Zacks Rank #2 (Buy) stock - earnings are expected to rise 8.4% in fiscal 2017.

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PEPSICO INC (PEP): Free Stock Analysis Report

DEAN FOODS CO (DF): Free Stock Analysis Report

B&G FOODS CL-A (BGS): Free Stock Analysis Report

LANCASTER COLON (LANC): Free Stock Analysis Report

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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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