Yahoo Finance Can PepsiCo’s Revenue Rise after 3 Straight Quarters of Decline?
PepsiCo's 3Q15 Earnings Preview: Will the Company Gain Momentum?
Analyst expectations
PepsiCo (PEP) exceeded consensus Wall Street analyst revenue estimates in the first two quarters of fiscal 2015 and in all the four quarters of fiscal 2014. However, the company’s revenue has declined for three consecutive quarters on a year-over-year basis.
For the third quarter of fiscal 2015 ended September 5, 2015, the consensus Wall Street analyst revenue estimate was $16.3 billion. This represents a 5.6% decline from the revenue in the comparable quarter of the previous year.
Revenue in the previous quarter
PepsiCo’s revenue in 2Q15 fell 5.7% to $15.9 billion due to a 10 percentage point impact of currency headwinds. PepsiCo’s significant exposure to international operations offset the revenue growth in the company’s Frito-Lay North America segment and the PepsiCo Americas Beverage segment.
Effective at the start of the third quarter, PepsiCo realigned its business segments. As part of this realignment, the PepsiCo Americas Beverage segment doesn’t include the Latin America beverage business anymore and is now called the North America Beverages segment. The Latin America food and beverage businesses are now reported under a single segment. Also, the Europe segment now includes the Sub-Saharan Africa markets that were previously a part of the PepsiCo Asia, Middle East, and Africa segment.
Currency headwinds
The favorable impact of higher pricing in 2Q15 was offset by adverse currency movements. PepsiCo expects currency headwinds to have an 11 percentage point impact and a 9 percentage point impact on net revenue growth in 3Q15 and fiscal 2015, respectively.
Despite currency fluctuations, PepsiCo continues to implement strategic initiatives in regions like the United Kingdom and Russia to capture the long-term growth opportunities in these regions. PepsiCo makes up 0.7% of the portfolio holdings of the iShares Russell 1000 ETF (IWB) and 4.3% of the iShares Global Consumer Staples ETF (KXI).
Foreign currency headwinds are also expected to impact Coca-Cola (KO), which derived 57% of its fiscal 2014 net operating revenue from its international operations. Coca-Cola’s exposure to international revenue in fiscal 2014 was more than PepsiCo’s 49% exposure.
Dr Pepper Snapple (DPS) derived 12.4% of its fiscal 2014 net sales from international operations. Net sales from outside the United States accounted for 21.7% of the fiscal 2014 net sales of leading energy drinks maker Monster Beverage (MNST).
The strength in PepsiCo’s North America business has been able to offset the impact of currency fluctuations to a certain extent. In our next article, we’ll look at this critical segment.
Browse this series on Market Realist:
