Four Things To Watch In PepsiCo, Inc. (PEP) Earnings

There are at least four things to watch out from the earnings results of PepsiCo, Inc. (NYSE:PEP) in the second quarter. These four factors could have the potential to impact the financial numbers either directly or indirectly. In the process, the results might also come above or below the Wall Street analysts’ expectations. The company rarely misses earnings expectations of the Street.

Currency Impact

The first and foremost is the foreign exchange headwinds that PepsiCo, Inc. (NYSE:PEP) has to undergo during the June quarter. While releasing the March quarter results, the company’s CEO, Indra Nooyi, warned that headwinds due to the foreign exchange transaction will continue to have its impact in the remainder of the year. She has assured that enough steps will be taken to maximize its global sourcing so that the food beverage firm could limit the unfavorable impact of foreign exchange.

The company suffered 8% unfavorable impact on its reported net revenue for the first quarter, which fell 3% YOY. There seems to be no changes between the first and the second quarters in respect of the currency headwinds. Therefore, the beverage firm will continue to face headwinds and how much is going to be the question mark.


Secondly, PepsiCo, Inc. (NYSE:PEP) has been involved in the execution of revenue management tactics, as well as, productivity initiatives. Both of them provided an expansion of 20 basis points enhancement in the core operating margin in the first quarter. It could have been much better but for the higher marketing and advertising expenses apart from impairment charges. Its core gross margin also witnessed an expansion of 1.5 percentage points. The company is likely to continue to witness improvement in core operating margin due to its initiatives.

Third key factor is the performance of PepsiCo Americas Beverages. The company experienced favorable impact from the weak commodity costs and productivity gains in the first quarter. It was partly compensated by increased operating cost besides advertising, as well as, marketing costs. Its contribution to the overall revenue improved to 36.3% in the first quarter from the previous year quarter’s 35.1%.

Carbonated Drinks

The fourth factor is the impact of the weak demand of the soda. Also, the consumers are turning towards health conscious drinks. In the process, they preferred to dump the artificially flavored drinks. The food and beverage firm has realized the consumers’ needs and started promoting healthy drinks actively apart from offering more choices. For instance, the company launched new Naked Juice flavors.

Street analysts are currently estimating PepsiCo, Inc. (NYSE:PEP) to report earnings of $1.24 a share and $15.8 billion revenue for the second quarter. Both the estimations suggest more than 6% YOY fall. Significantly, street analysts have not changed EPS expectations in the last two-month period. The company is not likely to revise its revenue guidance due to uneven global economic conditions. The results will be announced on Thursday before the market opens.

Viraj Shah

Viraj Shah has completed M.Com (Finance) and is currently pursuing his CFP. He tracks US markets along with other global markets like India very closely. He is very passionate about stocks, real estate, and technology. He also believes that money can always be made in the market.

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