Will PepsiCo Surpass Analysts’ Earnings Expectations in Fiscal 3Q17?
Earnings versus expectations
PepsiCo (PEP) has exceeded analysts’ earnings expectations for six consecutive quarters. The company delivered adjusted EPS (earnings per share) of $1.44 in fiscal 2Q17, which ended on June 17, 2017. The company’s fiscal 2Q17 adjusted EPS exceeded the consensus analysts’ EPS estimate of $1.40.
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Earnings growth drivers
In fiscal 2Q17, PepsiCo’s adjusted EPS rose 6.7% on a year-over-year basis. PepsiCo’s earnings growth rate in fiscal 2Q17 was higher compared to the 5.6% growth in fiscal 1Q17 and the 2.3% growth in fiscal 2Q16.
The growth in PepsiCo’s fiscal 2Q17 adjusted EPS was driven by higher revenue and lower taxes. PepsiCo’s adjusted effective tax rate was 23.5% in fiscal 2Q17 compared to 26.0% in fiscal 2Q16. The lower tax rate reflected the resolution of certain international tax matters and an income mix shift.
Expectations for fiscal 3Q17
For fiscal 3Q17, which ended on September 9, 2017, analysts expect PepsiCo’s adjusted EPS to rise 2.1% on a year-over-year basis to $1.43. Rival Coca-Cola (KO) is scheduled to announce its 3Q17 results on October 25. Currently, analysts expect the company’s adjusted EPS to fall 0.7% to $0.49 in 3Q17.
Based on the guidance issued in July 2017, PepsiCo expects its adjusted EPS to come in at $5.13 in fiscal 2017 compared to $4.85 in fiscal 2016. The company expects foreign currency fluctuations to negatively impact its fiscal 2017 adjusted EPS by two percentage points.
We’ll discuss the company’s valuation in the next part of this series.