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PepsiCo CFO: Coronavirus has little impact on sales

Brian Sozzi
·3 min read

At least for now, PepsiCo’s (PEP) exposure to China’s coronavirus outbreak looks contained given the company’s relatively small exposure to the country.

“Obviously a very difficult situation there,” PepsiCo CFO Hugh Johnston said on Yahoo Finance’s The First Trade. ”We have six plants there, and five are up and running. We actually expect the Wuhan plant to be up and running in the coming days as well. We were shut down for a period of time coming out of Chinese New Year, but we seem to be getting back to up and running a bit.”

PepsiCo operates a snacks manufacturing plant in Wuhan, China, where the outbreak has been among the most severe.

Added Johnston, “We think about this in three ways. Number one is our employees and ensuring that we are doing everything we can to help them and protect themselves in a challenging environment. Number two, we need to follow the directives and necessary steps that the government is taking to protect the people. And number three, we are going to do our best to run the business.”

BEIJING, CHINA - 2015/08/11: Pepsi products in a Chinese supermarket.  Coke companies are suffering large decline in consumption of sugary sodas as consumers worry about obesity.  Pepsi declares to replace the sweetener aspartame from the drink, while Coca-Cola is trying to spread the message that sugary sodas have no deleterious effect on health. (Photo by Zhang Peng/LightRocket via Getty Images)
Pepsi products in a Chinese supermarket. (Photo by Zhang Peng/LightRocket via Getty Images)

Johnston said China is less than 2% of PepsiCo’s sales.

“From an overall PepsiCo perspective based on everything we know right now, it’s not material. From the Chinese business perspective there is certainly some impact,” Johnston said.

Earnings surprise

Renewed market focus on the coronavirus epidemic overshadowed another solid quarter from PepsiCo.

The beverage and snacks giant notched organic volume gains across all segments except for Latin America. Core operating profits — which excludes the impact of currency fluctuations and is a measure watched closely by analysts — fell in four out of seven segments.

The language in PepsiCo’s earnings release suggests profits were held back by “certain operating cost increases” that perhaps offset strong work by executives to cut costs. PepsiCo also invested more aggressively in advertising, specifically in the North America beverage business to combat Coke’s strength in Diet Coke.

PepsiCo shares fell about 1%.

What remains to be seen is how investors will balance that quarter with a mixed outlook. PepsiCo guided to 2020 organic sales growth of 4%, below a long-running annual target of 4% to 4.5%. Core EPS guidance of $5.88 was short of some sell-side estimates. PepsiCo management does have a history of guiding conservatively, however, another factor investors must weigh right now.

Brian Sozzi is an editor-at-large and co-anchor of The First Trade at Yahoo Finance. Watch The First Trade each day here at 9:00 a.m. ET or on Verizon FIOS channel 604. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn.

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