It has been about a month since the last earnings report for Pepsico, Inc. (PEP - Free Report) . Shares have added about 2.8% in that time frame, outperforming the market.
Will the recent positive trend continue leading up to the stock's next earnings release, or is it due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.
Pepsi Tops Q4 Earnings Estimates, Guides Below Market
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%. At 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 $0.97 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%.
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 2% 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% at 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. At AMENA, beverage volumes grew 3%, softer than 5% growth registered in the previous quarter.
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.
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.
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.
How Have Estimates Been Moving Since Then?
Following the release, investors have witnessed a downward trend in fresh estimates. There have been three revisions lower for the current quarter. In the past month, the consensus estimate has shifted lower by 5.5% due to these changes.
At this time, Pepsico's stock has a strong Growth Score of 'A', though it is lagging a lot on the momentum front with an 'D'. However, the stock was allocated a grade of 'C' on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of 'B'. If you aren't focused on one strategy, this score is the one you should be interested in.
Our style scores indicate that the stock is more suitable for growth investors than value investors.
Estimates have been broadly trending downward for the stock. The magnitude of this revision also indicates a downward shift. Notably the stock has a Zacks Rank #3 (Hold). We are expecting an inline return from the stock in the next few months.