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PepsiCo (PEP) Q1 Earnings & Sales Beat Estimates, Stock Up

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PepsiCo, Inc. (PEP - Free Report) reported solid first-quarter 2019 results, wherein earnings and sales topped estimates. With this, the company reported sales beat in seven of the last nine quarters. Further, it recorded positive earnings surprise in 12 of the last 13 quarters.

This improvement in earnings can be mainly attributed to strong operating performance in the company’s international divisions and Frito-Lay North America. Additionally, sequential revenue growth at PepsiCo Beverages North America segment aided results.

PepsiCo’s shares were up nearly 2.4%, following strong first-quarter results. Moreover, shares of this Zacks Rank #3 (Hold) company has gained 11.2% in the past three months, outperforming the industry’s 3.5% growth.

 



Quarter in Detail

PepsiCo’s first-quarter core earnings per share (EPS) of 97 cents beat the Zacks Consensus Estimate of 92 cents and increased nearly 1% year over year. In constant-currency terms, core earnings improved 3% from the year-ago period.

Pepsico, Inc. Price, Consensus and EPS Surprise

 

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

The company’s reported earnings of $1.00 per share improved 6% year over year. Foreign exchange translation unfavorably impacted reported EPS by 2 percentage points.

Net revenues of $12,884 million advanced 2.6% year over year and surpassed the Zacks Consensus Estimate of $12,649 million. Notably, revenues included negative impact of 3 percentage points from foreign exchange (Fx). On an organic basis, excluding currency headwinds, revenues increased 5.2%.

This was primarily driven by strength in the majority of the company’s businesses — including Frito-Lay North America, all international divisions except for Asia, Middle East and North Africa (AMENA), and PepsiCo Beverages North America (PBNA). Notably, all segments except for Quaker Foods North America (QFNA) reported organic revenue growth in the first quarter.

Total volume was up 1% in the reported quarter compared with flat volume in the fourth quarter of 2018. While organic snacks/food volume increased 1% (at par with growth witnessed in the fourth quarter), beverage volume improved 2% (compared with flat volume in the last reported quarter).

On a consolidated basis, reported gross margin expanded 90 basis points (bps) while core gross margin improved 70 bps. Reported operating margin expanded 150 bps while core operating margin rose 80 bps.

Segment Details

Reported revenues declined 1% each at AMENA and QFNA segments. Meanwhile, net revenues improved 2% at PBNA, 5.5% at FLNA, 1% at Latin America and 1.5% at ESSA segments. Organic revenues improved 6% at FLNA, 2.5% at PBNA, 10% at Latin America, 8% at ESSSA and 10% at AMENA. However, organic revenues for the QFNA segment declined 1%.

Operating profit (on a reported basis) decreased 11% for the QFNA segment. However, it grew 6% for ESSA, 21% for Latin America, 10% for FLNA and 8% for AMENA segments.

Financials

The company ended first-quarter 2019 with cash and cash equivalents of $5,072 million, long-term debt of $28,458 million, and shareholders’ equity (excluding non-controlling interest) of $14,202 million.

Net cash used for operating activities was $345 million as of Mar 23, 2019, compared with $1,309 million as of Mar 24, 2018.

Guidance

Following strong results, PepsiCo reiterated guidance for 2019. It plans to continue investing in capabilities that will position it for growth in the future.

For 2019, the company anticipates organic revenue growth of 4%, with nearly 1% decline in core constant-currency EPS. The decline in EPS is likely to be driven by impacts of incremental investments to strengthen its business in 2019, higher effective tax rate guidance, and lapping of a number of asset-sale and refranchising gains that occurred in 2018. Effective tax rate is estimated to be nearly 21% in 2019.

Moreover, the company estimates currency to impact reported revenues and EPS by nearly 2 percentage points in 2019, based on current rates. Due to the above-mentioned factors, it anticipates core earnings of $5.50 per share in 2019, reflecting a 3% decline from $5.66 reported in 2018.

Further, management plans to return $8 billion to shareholders through dividends worth $5 billion and share repurchases worth $3 billion. Free cash flow is estimated to be around $5 billion. Operating cash flow is expected to be nearly $9 billion, with net capital spending of $4.5 billion.

Don’t Miss These Better-Ranked Beverage Stocks

Ambev S.A. (ABEV - Free Report) , with long-term earnings growth rate of 7.2%, currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Heineken NV (HEINY - Free Report) , with long-term earnings growth rate of 5.9%, presently carries a Zacks Rank #2.

New Age Beverage Corporation’s estimates for the current fiscal year moved north in the last 30 days. It currently carries a Zacks Rank #2.

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