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PepsiCo Beats Consensus on 4th Quarter Earnings

- By Alberto Abaterusso

PepsiCo (PEP) closed the fourth quarter of fiscal 2017 with a core net profit of $1.31 per share, a 9.2% increase on a year over year basis, beating consensus by one cent (U.S.).

Following the news, PepsiCo is up 0.19% on the Nasdaq stock exchange to $112.14 per share.

The beat produced a 0.80% surprise since consensus was for a core net profit of $1.3 per share.

Source: Yahoo finance

Fourth-quarter net earnings were backed on revenue of $19.526, a 0.1% increase compared to the same quarter of fiscal 2016. The translation of net revenues from foreign currencies to the U.S. dollar produced a 1% positive impact on the quarterly income statement's top line.

PepsiCo beat analysts' expectations on fourth quarter 2017 revenue by $140 million.

PepsiCo also reported a growth of 2.3% in fourth quarter organic revenue.

Fourth quarter 2017 net revenues were shared among the following products and segments and compared to the same quarter of 2016: Sales of Frito-Lay North America went down 1% to $4.829 billion; Sales of Quaker Foods North America decreased by 5% to $774 million.

Sales of the Latin America segment were $2.435 billion, a 6% increase on a year over year basis; sales of North America Beverages segment went down 6% from the comparable of 2016 to $5.9 billion; sales in Europe Sub-Saharan Africa segment increased to $3.7 billion at a 11% year over year growth rate; sales of the AMEA segment were flat compared to fourth quarter of 2016 with $1.9 billion.

The core gross profit was approximately $10.449 in the quarter, a 1.2% decline from the fourth quarter of 2016, and led to a 50-basis points contraction in the core gross margin of 53.51%.

PepsiCo's total core operating profit was $2.791 billion in the fourth quarter of 2017. This was a 6.6% increase from the prior-year quarter and led to a core operating margin of 14.29% of total net sales (+90 basis points year over year).

About the core net profit and total net sales for the entire year of 2017, the U.S. multinational food, snack and beverage corporation closed the reporting period with an EPS of 5.23 (+8% year over year) on a figure of $63.525 billion for total net revenues. Compared to fiscal 2016, total net revenues increased by 1% in 2017.

The chart below illustrates the trends in PepsiCo's total fourth quarter and yearly net revenues over the last five reporting periods:

The company provided its shareholders with the guidance for full fiscal 2018: PepsiCo predicts that organic revenue growth will be on par with 2017 growth. The core net profit is forecasted to be $5.70 per share, the net capex to approximately the amount of $3.6 billion, the operating cash flow to be about $9 billion and the free cash flow is anticipated at $6 billion.

The free cash flow will be used by PepsiCo for business growth purposes and to pay an annual dividend of $3.71 per share through quarterly dispersions of 92.75 cents to its shareholders. The quarterly cash distribution of 92.75 cents represents a 15.22% increase from the last quarterly dividend of 80.5 cents per share that PepsiCo will pay at the end of the first quarter of fiscal 2018. This means that the first hiked quarterly dividend will be paid starting sometime in June 2018.

The company closed fiscal 2017 with 18.28 billion in cash on hand and securities. This amount of cash plus the free cash flow that PepsiCo's operations will generate in 2018, will provide the U.S. global food, snack and beverage corporation with the necessary liquidity to also finance the replacement of a $12 billion buyback program with a new one for up to $15 billion. PepsiCo will start to repurchase its own shares under the new program this year on July 1.

The company has a market capitalization of $159.48 billion, a price-book ratio (P/B) of 11.86 times versus an industry median of 2.77, a price-sales (P/S) ratio of 2.51 times versus an industry median of 1.38 times and a price-earnings (P/E) ratio of 23.17 times versus an industry average of 23.83 times.

(Disclosure:I have no positions in any stock mentioned in this article.)

This article first appeared on GuruFocus.