Financial Performance

PepsiCo Beats Q3 Estimates, Raises Guidance

The company defied analysts' forecasts of a drop in earnings as its $5 billion cost-cutting program continues to boost the bottom line.
Matthew HellerSeptember 29, 2016

PepsiCo on Thursday reported better-than-expected third-quarter results and raised its full-year guidance for a second straight quarter as the company continued to be one of the packaged food industry’s strongest performers.

PepsiCo’s earnings rose 4% to $1.40 per share, defying analysts’ estimates of a 2% drop to $1.32. Revenue fell 2% to $16.03 billion, the seventh straight quarter of declining sales, but it was the smallest drop in six quarters and above the consensus forecast for $15.83 billion.

The beverage and snack giant now expects adjusted earnings per share to grow 10% instead of 9% this year as a cost-cutting push continues to boost the bottom line.

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“We are pleased with our results for the third quarter and year to date. We are executing our strategy well and managing what is in our control,” PepsiCo CEO Indra Nooyi said in a news release. “Our product portfolio, geographic mix and capability centers are enabling us to deliver balanced revenue and productivity.”

“Based on our year-to-date performance and our outlook for the fourth quarter, we are raising our full-year core constant currency EPS growth objective,” she added.

In developing and emerging markets, PepsiCo had another solid quarter, with organic revenue increasing 8% overall and 11% in both China and Mexico. As The Wall Street Journal reports, the company generates nearly half its sales abroad with everyday staples like soda, potato chips and juice.

North American beverage unit volumes rose 2% in the third quarter after being flat in the first half as strong growth in noncarbonated beverages, including Naked juice, Pure Leaf tea, and Propel electrolyte-enhanced water, offset declines in sodas, particularly Diet Pepsi.

Gross operating margins expanded for the 15th straight quarter, reflecting PepsiCo’s five-year, $5 billion cost-cutting plan.

Credit Suisse has estimated the Frito-Lay division alone is on track to earn about $4.6 billion in profits this year. “Not only is Pepsi proving that it has a sustainable business, but it’s showing it could expand the business via targeted marketing and new innovations,” TheStreet said.