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Why PepsiCo Expects 4% Organic 2016 Growth after Beating Estimates

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Revenue ahead of estimates

Snack food and beverage giant PepsiCo (PEP) reported revenue of $18.6 billion in 4Q15, which ended on December 26, 2015. It beat the consensus Wall Street analyst revenue estimate of $18.5 billion. PepsiCo announced its fourth quarter and full-year fiscal 2015 results on February 11.

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Currency fluctuations drag 4Q15 revenue down

PepsiCo’s revenue fell for the fifth consecutive quarter in 4Q15 due to adverse currency movements. PepsiCo’s 4Q15 revenue fell 6.8%. 4% growth in organic revenue was offset by currency headwinds of eight percentage points. PepsiCo’s organic revenue growth in 4Q15 was lower than the previous sequential quarter when it reported 7.4% organic growth. PepsiCo constitutes 1.5% of the iShares Russell 1000 Growth ETF (IWF).

PepsiCo’s international revenue accounted for 44% of its net revenue in fiscal 2015. PepsiCo and Coca-Cola (KO) have significant exposure to international operations. Sustained weakness in major currencies has been impacting these companies’ revenues. Coca-Cola’s (KO) revenue in 4Q15 fell 8% year-over-year. Dr Pepper Snapple (DPS), which is slated to report its results on February 17, has lower international exposure. Aside from the United States, the company only operates in Canada, Mexico, and the Caribbean.

Revenue outlook in fiscal 2016

PepsiCo expects organic revenue growth of ~4% in fiscal 2016, driven by investments in its brands and innovation as well as its revenue management strategies. In December 2015, PepsiCo announced the launch of Organic Gatorade and Hello Goodness vending machines. Beverage companies are also focusing on higher-margin, smaller packs and strategic acquisitions to boost sales and offset lower soda volumes. In 2015, Coca-Cola acquired a 16.7% stake in Monster Beverage (MNST).

PepsiCo expects currency headwinds to be a four-percentage-point drag on its fiscal 2016 net revenue.

In this series on PepsiCo’s 4Q15 results, we’ll discuss the company’s earnings, segment performance, profitability, dividend policy, and valuation.

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