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What Caused a Dip in PepsiCo’s Revenue for 6th Straight Quarter?

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Revenue declines in 1Q16

PepsiCo (PEP) reported a 2.9% decline in its revenue for 1Q16 ended March 19, 2016. This marked the sixth consecutive quarter of revenue decline for the snack food and beverage giant. PepsiCo’s revenue in 1Q16 came in at $11.86 billion, slightly missing the consensus Wall Street analysts’ revenue estimate of $11.89 billion.

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Unfavorable factors

PepsiCo’s revenue declined in 1Q16 due to a 4.5 percentage point unfavorable impact from adverse currency movements. The company’s top line in 1Q16 was also hit by a two percentage point unfavorable impact from the deconsolidation of its Venezuelan operations.

The favorable impact from a rise in volumes and higher net pricing in PepsiCo’s key markets was offset by currency headwinds in 1Q16. PepsiCo continues to expect foreign exchange translation to negatively impact its full-year fiscal 2016 net revenue growth by four percentage points. PepsiCo accounts for 6.8% of the portfolio holdings of the iShares U.S. Consumer Goods ETF (IYK).

The strengthening of the US dollar against major world currencies is making companies with higher exposure to international operations vulnerable to adverse currency fluctuations. In fiscal 2015, PepsiCo, Coca-Cola (KO), and Monster Beverage (MNST) derived 44%, 54%, and 21.3% of their revenues from overseas operations, respectively. Dr Pepper Snapple (DPS), the third largest US soda maker, has lower exposure to international operations, which accounted for 11.3% of its revenue in fiscal 2015.

Organic revenue growth

PepsiCo’s organic revenue, which excludes the impact of acquisitions, divestitures, and other structural changes as well as foreign exchange translation, increased by 3.5% in 1Q16. The company attributed the growth in its 1Q16 organic revenue to high-single-digit growth in its Latin America segment and its Asia, Middle East, and North Africa (or AMENA) segment, and a 4% growth in the Frito-Lay North America segment.

In the next part of this series, we will discuss PepsiCo’s focus on health and wellness products to drive its revenue.

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