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PepsiCo (PEP) Beats Q4 Earnings Estimates, Issues 2018 View

Zacks

PepsiCo, Inc. PEP reported fourth-quarter 2017 (ending Dec 30) results, with earnings and revenues beating the Zacks Consensus Estimate. Notably, this is the seventh consecutive quarter of positive earnings surprise. Improvement in the snack business helped offset continued weakness at the company’s beverage business amid “rapidly shifting consumer landscape”.

Earnings

PepsiCo’s fourth-quarter core earnings per share (EPS) of $1.31 beat the Zacks Consensus Estimate of $1.30 and increased 9% year over year, mainly driven by better operating efficiency. In constant currency terms, adjusted earnings grew 8%.

Core earnings exclude restructuring and impairment charges and commodity mark-to-market net impact. The company reported a loss of 50 cents per share due to a $2.5 billion one-time charge related to new U.S. tax laws. The reported loss reflects a decrease of 152% year over year. Foreign exchange translation had a positive impact of 1% on reported EPS.

Revenues

Net revenues of $19.53 billion remain unchanged with the year-ago level. Foreign exchange (Fx) had a positive impact on revenues growth of 1% and pricing had a positive impact of 2%. Reported revenues also topped the Zacks Consensus Estimate of $19.44 billion.

Excluding the impact of Fx, revenues increased 2.3% on an organic basis, primarily driven by higher demand for food/snacks in the Asia, Middle East and North Africa (AMENA), Europe Sub-Saharan Africa (ESSA), Latin America and Frito-Lay North America (FLNA) segments. Notably, overall organic sales growth was better than the 1.7% rise recorded in the previous quarter.

Total volumes remained unchanged during the quarter against 1% growth in the previous quarter. While organic snacks/food increased 2% (better than 1% growth witnessed in the third quarter), beverage volumes dropped 2% (versus down 1%).

Quarterly Segment Details

Revenues decreased 1% at the Frito-Lay segment, 5% at Quaker Foods (QFNA) and 6% at North America Beverages (NAB). However, revenues improved 6% in Latin America and 11% in ESSA segments. Meanwhile, revenues at AMENA remained unchanged.

Notably, the company’s NAB segment was negatively impacted by higher input costs, operating cost inflation and restructuring charges that substantially offset productivity gains. Moreover, the 53rd reporting week in the prior year and hurricane-related costs also added to the woes. Organic sales and beverage volumes were down 3% and 2%, respectively, in the quarter.

Operating profits (on a reported basis) increased 20% in Latin America and 173% in AMENA. However, operating profits plunged 29% in the NAB, 6% in the QFNA and 1% in the Frito-Lay segments.

Pepsico, Inc. Price, Consensus and EPS Surprise

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


Margins

Core gross margins contracted 50 basis points (bps). However, core operating margin expanded 90 bps.

Financials

Cash and cash equivalents were $10.6 billion as of Dec 30, 2017, up from $9.2 billion as of Dec 26, 2016. Long-term debt was $33.8 billion at the end of the year, up from $30.1 billion as of Dec 26, 2016.

Net cash provided by operating activities was $9.99 billion in 2017, compared with $10.7 billion in the year-ago period.

2017 Highlights

Net revenues came in at $63.5 billion, increasing meagerly by 1% from 2016 level. Organic revenues growth was 2.3% in 2017, down from 3.7% growth registered in 2016.

Core earnings of $5.23 per share grew 8% from 2016 level.

Boosts Dividend by 15%

PepsiCo announced a 15% increase in its annualized dividend per share to $3.71 from $3.22 per share, representing the company’s 46th consecutive annual dividend per share increase.

2018 Guidance

PepsiCo expects full-year organic revenues growth (excluding headwinds from currency and structural changes) to be approximately in line with the 2017 growth rate. Currency is projected to have a neutral effect on the top and the bottom lines.

PepsiCo expects core EPS to be $5.70, up 9%.

Also, management plans to return $7 billion to its shareholders through dividends and share repurchases. Free cash flow is estimated to be around $6 billion.

The company carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Upcoming Peer Releases

The Coca-Cola Company KO is scheduled to report quarterly results on Feb 16.

Dr Pepper Snapple Group Inc. DPS is slated to report quarterly results on Feb 14.

Monster Beverage Corp. MNST is expected to report quarterly results on Mar 7.

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