Are Pepsico Q1 Results On Track to Meet 2016 Objectives?

Event: Pepsico released its Q1 Earnings, April 18, 2016

Did Revenue & EPS Growth Meet Previously Set Objectives?

Despite sluggish growth in many global markets, the company has performed reasonably well.
Earlier in Feb 2016, the company had set objectives (guidance).

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Few key goals for entire 2016 before Q1 results were as follows.

  1. 4% growth in organic revenue. (Organic revenue excludes the effect foreign exchanges, mergers, etc.)
  2. Core constant currency EPS growth of 8%.

The numbers posted in Q1 this April closely reflect those. For example, the organic revenue has grown by 3.5% in Q1. Moreover, the core constant currency EPS has seen an 11% growth for the quarter.

The Q1 numbers suggest that the company is on the right track for 2016 despite weak macroeconomic conditions, especially outside the US.

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You know Pepsico comprises six global segments. Few key highlights are as follows.

  1. Other than QFNA (Quacker Foods North America) all the divisions have shown positive volume growth.
  2. AMENA (Asia, Middle East, and North Africa) has registered the highest volume growth of 6%.
  3. Two North American segments namely FLNA (Frito-Lay North America) and NAB (North American Beverages) have shown remarkable core constant currency operating profit increase of 10% and 7% respectively.

Despite solid core/organic numbers, the currency translations and out of US macroeconomic factors have dragged the reported revenue. The reported revenue has suffered a 3% decline from $12.2 billion to $11.9 billion.

Financial Performance Impact:

Which 3 Key Initiatives Have Worked Remarkably Well?

The Q1 numbers are indicating a bright start to 2016, especially when global markets are volatile. The results have instilled confidence among the management to continue the good work in at least three areas.

  1. Work to improve the product portfolio to include more low-calorie beverages and foods. For example, unlike previous years, healthy foods derived from grains, fruits, etc., contribute to 25% of net revenue.
  2. Improve the spending on advertising and marketing. For example, the advertising spending in 2015 was about 21% more compared to 2011. This budget will further increase. The increased spending in A&M has largely contributed to increasing volume across the globe.
  3. Continue and improve the smart spending initiative which is helping to achieve huge productivity gains. In 2016, the company is expecting to save $1 billion by productivity improvements.

How The Shares Reacted Immediately After Q1?

At the time this post is being written, two days have elapsed since earnings. There is no significant movement of stock prices in either direction. For example, the price which was 103.72 points on April 18, ended slightly higher at 104.32 points on April 19.

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