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Pepsi (PEP) Tops Q1 Earnings, Revenues on Price Gains

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PepsiCo, Inc. (PEP - Free Report) reported better-than-expected results in first-quarter 2017 (ending Mar 25), with both earnings and revenues beating the Zacks Consensus Estimate.

Positive price realization, cost cutting initiatives and healthier snacks helped the company to post better-than-expected results. This partly offset some challenging food and beverage industry trading conditions in North America accompanied by continued volatility in many developing and emerging markets.

Earnings

PepsiCo’s first-quarter core earnings per share (EPS) of 94 cents beat the Zacks Consensus Estimate of 91 cents by 3.3%.

Earnings grew 5.6% year over year despite adverse impact of currency headwinds on sales. Also, currency hurt earnings by 2%. In constant currency terms, adjusted earnings grew 7% on decent sales growth.

Notably, core earnings exclude restructuring and impairment charges and commodity mark-to-market net impact. Reported earnings came in at 91 cents per share, up 43% year over year, primarily reflecting the impact of the year-ago charge related to the transaction with Tingy.
 

Sales

Total sales improved 1.6% year over year to $12.05 billion. Foreign exchange (Fx) hurt revenue growth by 1%. Reported revenues surpassed the Zacks Consensus Estimate of $11.97 billion by 0.7%.

Excluding the impact of Fx, revenues increased 2.1% on an organic basis, primarily driven by higher demand for beverages/food/snacks in Latin America and Asia, and Europe Sub-Saharan Africa. However, organic sales growth was lower than the 3.7% rise recorded in the previous quarter.

Total volumes remained flat in the quarter versus 2% growth witnessed in the previous quarter. While organic snacks/food grew 1%, beverage volumes were even.

Quarterly Segment Details

Organic food/snacks volumes dropped 1.5% at the Frito-Lay segment, softer than 1% growth seen in the last quarter. Organic volumes decreased 1% at Quaker Foods, another American snacks business, against growth of 1% recorded in the previous quarter.

Organic snacks volumes rose 1% at the Latin America segment (softer than 4% growth in the previous quarter) and 7% in AMENA (softer than 8% growth in the last quarter). Organic snacks volumes rose 3.5% at the Europe Sub-Saharan Africa (ESSA) segment, a shade higher than the 3% growth last quarter.

Organic beverage volumes grew 3%, same as the previous quarter. However, it declined 3% in North America, 3% in Latin America and 1% in ESSA.

Margins

Core gross margins contracted 45 basis points (bps). Core operating margin contracted 28 bps on lower gross margin gains.

Financials

Cash and cash equivalents were $9,528 million as of Mar 25, 2017, up from $9,158 million as on Dec 26, 2016. Long-term debt was $30,081 million at the quarter end, up from $30,053 million as on Dec 26, 2016.

Net cash used for operating activities were $199 million in the quarter, against cash provided by operating activities of $305 million a year ago.

2017 Guidance

The company reaffirmed its core earnings guidance at $5.09 per share, compared with $4.85 reported in 2016. 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 2%, 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.

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

Peer Releases

Dr Pepper Snapple Group Inc. reported first-quarter adjusted earnings per share of $1.01, beating the Zacks Consensus Estimate of 96 cents by 5.2%. Earnings also increased 7.4% year over year.

The Coca-Cola Company’s (KO - Free Report) first-quarter 2017 adjusted earnings were 43 cents per share, missing the Zacks Consensus Estimate of 43 cents by 2.3%.

Upcoming Peer Release

Monster Beverage Corp. (MNST - Free Report) is expected to report quarterly results on May 5.

Pepsico, Inc. Price, Consensus and EPS Surprise

 

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

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