Pepsi Earnings Hurdle Revenue Challenges

PepsiCo Inc. (NYSE: PEP) reported first-quarter 2016 results before markets opened Monday. The snack food and beverage company posted core (adjusted) diluted earnings per share (EPS) of $0.89 on revenues of $11.86 billion. In the same period a year ago, the company reported EPS of $0.83 on revenues of $12.22 billion. First-quarter results also compare to the Thomson Reuters consensus estimates for EPS of $0.81 and $11.88 billion in revenues.

On a GAAP basis, first-quarter EPS totaled $0.64 and net revenue fell 3% as a result of currency translation effects and currency devaluation in Venezuela.

For 2016 Pepsi continues to forecast adjusted EPS growth of 8% on a constant currency basis to $4.66. The consensus estimate had called for 2016 EPS of $4.70. Pepsi expects a negative impact of around 4% on adjusted EPS due to currency exchange transactions and 2% due to Venezuelan deconsolidation.

The company also expects organic revenue to grow by 4% this year. Free cash flow is targeted at over $7 billion on operating cash flow of more than $10 billion, and capital spending is forecast at $3 billion for the year.
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Pepsi plans to pay out about $7 billion in dividends this year ($2.81 annual rate) and buy back about $3 billion in stock.

CEO Indra Nooyi said:

We delivered strong first quarter operating results driven by balanced execution of our commercial agenda and productivity programs. Our marketing initiatives and new product launches are generating solid organic top line growth, and our focus on driving greater efficiency throughout our operations contributed significantly to attractive core gross margin expansion. We are off to a strong start to the year and that gives us added confidence in achieving our financial objectives for 2016.

PepsiCo’s shares traded up about 0.2% early Monday, at $103.99 in a 52-week range of $76.48 to $105.77. Thomson Reuters had a consensus analyst price target of $109.05 before the report.