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What Helped PepsiCo Beat 1Q16 Earnings Estimates?

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Apr. 21 2016, Published 2:48 p.m. ET

1Q16 earnings beat estimates

PepsiCo’s (PEP) 1Q16 earnings exceeded Wall Street estimates even as forex headwinds continued to bring down the bottom line. In 1Q16, which ended March 19, PepsiCo’s adjusted EPS (earnings per share) were $0.89, beating the consensus Wall Street analysts’ estimate of $0.81.

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Earnings growth drivers

PepsiCo’s adjusted EPS in 1Q16 increased by 7.2% to $0.89 on a year-over-year basis. This increase in the company’s adjusted EPS came after three consecutive quarters of decline. The increase in PepsiCo’s earnings despite lower sales was a result of an improvement in the company’s gross margin and a strong performance by the company’s North America business. The Vanguard Dividend Appreciation ETF (VIG) has 3.6% exposure to PepsiCo.

PepsiCo’s 1Q16 adjusted EPS excludes a $0.26 per share impact of impairment charges related to the company’s 5% indirect equity interest in Tingyi-Asahi Beverages Holding.

Forex continues to be a headwind

Currency headwinds had a four percentage-point impact on the company’s 1Q16 EPS. PepsiCo, which has an extensive presence in over 200 countries, was also significantly impacted by currency headwinds in the previous financial year. The company’s fiscal 2015 adjusted EPS declined by 1.3%, primarily due to the impact of adverse currency fluctuations. Rival Coca-Cola’s (KO) fiscal 2015 earnings declined by 2% as a result of currency headwinds. Dr Pepper Snapple (DPS), which has lower exposure to international operations, reported adjusted EPS growth of 10.1% in fiscal 2015. Monster Beverage’s (MNST) fiscal 2015 adjusted EPS grew by 7.9% as strong sales growth offset the impact of adverse currency fluctuations.

Guidance reaffirmed

Despite the volatile macro environment, PepsiCo reaffirmed its guidance for fiscal 2016. The company expects its organic revenue to grow by 4% in fiscal 2016. This estimate excludes the impact of the additional 53rd week, which is expected to contribute ~1 percentage point to reported net revenue growth in fiscal 2016. PepsiCo expects its fiscal 2016 adjusted EPS to come in at $4.66 compared to $4.57 in fiscal 2015.

In the next part of this series, we’ll discuss PepsiCo’s 1Q16 revenue.

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