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PepsiCo: Currency Fluctuations Cast a Shadow over 4Q15 Earnings

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4Q15 earnings down

PepsiCo (PEP) reported a 5.4% fall in its 4Q15 adjusted earnings. Currency headwinds continued to impact the company’s bottom line. Overall, the company’s adjusted EPS (earnings per share) fell 1.3% to $4.57 in fiscal 2015, which ended December 26, 2015. Foreign currency fluctuations impacted PepsiCo’s reported EPS growth in 4Q15 and fiscal 2015 by 8% and 11%, respectively.

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Earnings in line with estimates

PepsiCo reported adjusted EPS of $1.06 in 4Q15, in line with the consensus Wall Street analyst estimate. PepsiCo exceeded analysts’ earnings estimates in the first three quarters of fiscal 2015. The company’s adjusted EPS exclude the impact of:

  • a $0.16 per share non-cash tax benefit
  • a $0.01 per share benefit for a pension-related settlement
  • $0.06 per share of restructuring and impairment charges related to the company’s productivity initiatives

Rival Coca-Cola (KO) reported a 13.6% decline in its 4Q15 revenue due to currency headwinds. Dr Pepper Snapple (DPS), the third-largest soda maker in the United States, is slated to release its 4Q15 results on February 17. The company reported 10.2% growth in its adjusted EPS in 3Q15. Mondelez International (MDLZ), PepsiCo’s peer in the snack food category, reported a 2.1% decline in its 4Q15 adjusted EPS. The decline was a result of a strong dollar and weak demand in Europe, the company’s biggest market.

Fiscal 2016 earnings outlook

In the 4Q15 conference call, Indra K. Nooyi, PepsiCo’s chair and chief executive officer, stated that the company expects macro challenges to continue this year. These difficulties include a strong US dollar and sluggish growth or recession in most developing and emerging markets. The company also expects foreign currency fluctuations to be a headwind to PepsiCo’s earnings. For fiscal 2016, the company expects adjusted EPS to come in at $4.66. The company expects currency headwinds to be a four-percentage-point drag on fiscal 2016 EPS. PepsiCo constitutes 2.1% of the iShares Russell Top 200 Growth ETF (IWY).

Currency headwinds have impacted PepsiCo’s international segments. Meanwhile, the company’s domestic segments are performing well. We’ll discuss this performance in the next part of this series.

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