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Will PepsiCo Deliver Strong 1Q17 Earnings?

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Part 2
Will PepsiCo Deliver Strong 1Q17 Earnings? PART 2 OF 5

PepsiCo’s Q1 Revenue: What to Expect from Innovation

Revenue trend

PepsiCo (PEP) delivered revenue growth of 5.0% in 4Q16 after eight consecutive quarters of declines in its top line. For fiscal 1Q17, which ended on March 25, 2017, analysts expect the company’s revenue to rise 1.0% to about $12.0 billion. Analysts expect the 1Q17 revenue of rivals Coca-Cola (KO) and Dr Pepper Snapple (DPS) to rise by -14.0% and 4.3%, respectively.

PepsiCo’s Q1 Revenue: What to Expect from Innovation

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Innovation to help revenue

In the 4Q16 conference call, PepsiCo’s chief executive officer, Indra Nooyi, stated that the net contribution from products introduced within the past three years averaged over $5 billion since 2013. The company’s innovation efforts focus on healthier snack food and beverage options. For instance, PepsiCo has come with new recipes for Mirinda and 7UP with 30% less sugar. In Russia, the company launched its J7 apple juice, which delivers the fiber of a single apple in each serving. In its snack food business, the company launched Quaker Breakfast Flats, which it plans to expand to many more countries.

PepsiCo plans to continue to innovate more “guilt-free products,” which accounted for 45% of its 2016 net revenue. PepsiCo’s “guilt-free products” include everyday nutrition products, diet beverages and other beverages with fewer than 70 calories per 12 ounces, and snacks with low sodium and saturated fat.

Company’s expectations

Based on the guidance issued in February 2017, PepsiCo expects organic revenue growth of 3.0% in fiscal 2017.

In the 4Q16 conference call, PepsiCo’s chief financial officer, Hugh F. Johnston, mentioned some factors that are likely to hurt organic revenue growth in 1Q17. Among the headwinds, the company expects its organic sales to fall at its Asia-Middle East-North Africa (or AMENA) division. This decline is expected to be caused by higher volatility in the region and the timing of Chinese New Year. PepsiCo also expects holiday calendar shifts to modestly impact its revenue in North America in 1Q17.

We’ll look at the company’s earnings in the next part of this series.

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