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Could PepsiCo’s Fiscal 1Q18 Earnings Surpass Expectations?

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Earnings trends

PepsiCo’s (PEP) earnings surpassed analysts’ estimates in all quarters of fiscal 2017. Analysts expect the company’s adjusted EPS (earnings per share) to fall 1.1% to $0.93 in fiscal 1Q18, which ended on March 24, 2018. Its revenue is expected to be impacted by higher commodity costs.

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Earnings in 2017

PepsiCo’s adjusted EPS grew 7.8% to $5.23 in fiscal 2017, driven by higher revenue and operating margin improvement. Foreign currency fluctuations impacted the company’s fiscal 2017 EPS by one percentage point. Peer Coca-Cola (KO) delivered adjusted EPS of $1.91 in 2017, unchanged from the previous year.

PepsiCo’s adjusted EPS rose 9.2% to $1.31 in fiscal 4Q17, its last reported quarter. Higher revenue, margin improvement, and foreign currency movements boosted the company’s adjusted EPS.

Company’s guidance

PepsiCo expects its adjusted EPS to rise ~9.0% to $5.70 in fiscal 2018. The company expects the benefits of lower tax (resulting from the newly enacted tax reform) to be offset by incremental investments in growth initiatives.

The company’s bottom line is expected to benefit from share repurchases, which boost EPS by lowering average share count. In February 2018, the company announced a share repurchase program allowing for the repurchase of up to $15 billion in common stock, beginning July 1, 2018. The company plans to repurchase stock worth $2 billion in fiscal 2018. We’ll look at analysts’ expectations for the company’s fiscal 2018 earnings in the next part of this series.

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