PepsiCo, Inc. (PEP - Free Report) reported mixed third-quarter 2017 (ending Sep 9) results, with earnings beating the Zacks Consensus Estimate and revenues missing the same. Nonetheless, this is the sixth consecutive quarter of positive earnings surprise.
Earnings
PepsiCo’s third-quarter core earnings per share (EPS) of $1.48 beat the Zacks Consensus Estimate of $1.42 by 4.2%. Core earnings grew 6% year over year, mainly on better operating efficiency. In constant currency terms, adjusted earnings grew 7%.
Core earnings exclude restructuring and impairment charges and commodity mark-to-market net impact. Reported earnings came in at $1.49 per share, reflecting an increase of 9% year over year. Foreign exchange translation had an adverse impact of 1% on reported EPS.
Pepsico, Inc. Price, Consensus and EPS Surprise
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Pepsico, Inc. Price, Consensus and EPS Surprise | Pepsico, Inc. Quote
Sales
Total sales improved 1.3% year over year to $16.24 billion. Although foreign exchange (Fx) hurt revenue growth by 1%, pricing had a positive impact of 3%. Reported revenues came in below the Zacks Consensus Estimate of $16.42 billion by 1.1%.
Excluding the impact of Fx, revenues increased 1.7% on an organic basis, primarily driven by higher demand for beverages/food/snacks in the Asia, Middle East and North Africa (AMENA), Europe Sub-Saharan Africa (ESSA) and Latin America segments. Notably, organic sales growth was softer than the 3.1% rise recorded in the previous quarter.
Total volumes declined 1% during the quarter against flat growth in the previous quarter. While organic snacks/food increased 1% (softer than 2% growth witnessed in the second quarter), beverage volumes dropped 1% (versus down 2%).
Quarterly Segment Details
Revenues grew 3% at the Frito-Lay segment, 1% at Quaker Foods (QFNA), 6% at Latin America and 8% at ESSA. However, revenues declined 3% in North America Beverages (NAB) and 4% in AMENA segments.
Notably, the company’s NAB segment was negatively impacted by operating cost inflation that substantially offset productivity gains. While volume sales were down 6%, net pricing was up 1% in the segment.
Operating profits (on a reported basis) increased 5% in the Frito-Lay segment, 2% in QFNA, 14% in Latin America, 12% in ESSA, and 1% in AMENA. However, operating profits plunged 10% in the NAB segment.
Margins
Core gross margins contracted 15 basis points (bps). However, core operating margin expanded 30 bps.
Financials
Cash and cash equivalents were $10.24 billion as of Sep 9, 2017, up from $9.2 billion as of Dec 26, 2016. Long-term debt was $31.5 billion at the end of the quarter, up from $30.1 billion as of Dec 26, 2016.
Net cash provided by operating activities was $3.8 billion in the third quarter. It was $6.1 billion in the first nine months of fiscal 2017 compared with $6.8 billion in the year-ago period.
Fiscal 2017 Guidance
PepsiCo now expects full-year organic revenue growth (excluding headwinds from currency and structural changes) to approximate its year-to-date growth rate, i.e. 2.3% (against its earlier projection of at least 3%). Currency is projected to hurt revenues by 1% versus 2% expected earlier, while the 53rd week in 2016 is expected to restrict sales by 1%.
PepsiCo lifted its core EPS forecast to $5.23 from $5.13 expected earlier. The company expects core EPS growth of 9% (previously 8%) offset by 1% negative impact (previously expected to be 2%) from the Fx translation. The company now anticipates foreign exchange to have less negative impact on core earnings than previously expected.
Also, management plans to return $6.5 billion to its shareholders through dividends and share repurchases. Free cash flow is estimated to be around $7 billion.
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