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Why Analysts Expect PepsiCo’s Revenue to Fall in Fiscal 3Q16

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3Q16 results

Snack food and beverage giant PepsiCo (PEP) is scheduled to announce its fiscal 3Q16 results on September 29, 2016. The quarter ended on September 3, 2016.

In 1Q16 and 2Q16, PepsiCo was in line with consensus analysts’ revenue estimates. However, 2Q16 was the seventh consecutive quarter in which the company’s revenue fell on a year-over-year basis.

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Weakness in its top line

PepsiCo’s revenue fell 3.3% in 2Q16, which ended on June 11, 2016. This fall was more than the 2.9% fall in 1Q16 revenue but an improvement over the 5.7% fall in 2Q15.

Adverse currency movements have been significantly impacting PepsiCo’s performance due to the company’s extensive international exposure. PepsiCo has a presence in more than 200 countries. Revenue growth in 2Q16 was adversely impacted by currency headwinds of 4 percentage points.

The deconsolidation of Venezuelan operations had an unfavorable impact of 2.5 percentage points on PepsiCo’s 2Q16 net revenue. Excluding the impact of currency headwinds and structural changes, PepsiCo’s organic revenue rose 3.3% in 2Q16.

In terms of segment performance, PepsiCo’s business in North America delivered better results than its international segments. Its Frito-Lay North America segment, its Quaker Foods North America segment, and its North America Beverages segment saw revenues rise 3.2%, 2.7%, and 0.6%, respectively, in 2Q16.

PepsiCo’s peer Coca-Cola (KO) saw revenues fall 5.1% in 2Q16. Dr Pepper Snapple (DPS) and Monster Beverage (MNST) saw their revenues rise 2.4% and 19.3%, respectively, that quarter. PepsiCo is among the top ten holdings of the iShares US Consumer Goods (IYK) and accounts for 6.9% of the fund.

Revenue expectations

Analysts expect PepsiCo’s revenue in 3Q16 to fall 3.1% to $15.8 billion. This guidance mainly reflects the impact of an unfavorable movement in foreign currencies. Currently, analysts expect PepsiCo’s fiscal 2016 revenue to fall 0.6%.

In the next part of this series, we’ll take a look at PepsiCo’s food business in North America.

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