PepsiCo sees 31% surge in fourth quarter (Q4) profits on strong U.S. economy, falling fuel prices

PepsiCo, the global soft drinks giant known for its Pepsi brand, mountain dew, among others said on Thursday that its fourth-quarter profit rose 31%. However, the Chief Executive Officer, Indra Nooyi warned that continued weaker economies abroad could upend the U.S. economy.

The snack and beverage maker reported the best performance at its North American drinks unit in three years, with U.S. consumers willing to pay more for its products on the strength of cheaper fuel prices and a strong U.S. economy.

Ms. Nooyi was quoted as saying “Over my several decades in business, I have never seen this combination of sustained headwinds across most economies, combined with high volatility across global financial markets.”

She said the U.S. economy could be dragged down by weaker economies and political upheaval abroad that have sent foreign currencies sharply lower.

PepsiCo said fourth-quarter profit rose to $1.72bn, from $1.31bn a year earlier. It added that the 2014 results were hurt by restructuring charges tied to a five-year, $5bn productivity program.

However, the company said that revenue fell 6.8% to $18.59bn, from $19.95bn, caused by a strong dollar, which had a negative impact of eight percentage points. PepsiCo generates about half of its revenue overseas.

PepsiCo said that revenue at its North American unit rose 1.9% to $5.85bn in the fourth-quarter, while profits surged 13% to $639 million, buoyed by lower commodity costs, higher pricing and productivity gains. PepsiCo and beverage rival, Coca-Cola have been rolling out smaller cans and bottles, charging consumers more per ounce.

The company reported a 1% volume decline in Latin America, flat volume sales in Europe and Sub Saharan Africa, 3% rise in Asia, Middle East and North Africa. Revenue at all three units fell in dollar terms.

Ms. Nooyi said Western Europe was showing signs of recovery and that India was holding up, while China appeared “moderately ok.”

Chief Financial officer, Hugh Johnston, said in an interview with analysts, that sales in Russia, the company’s biggest overseas market were still growing in local-currency terms despite a weak ruble. “We’re either a super staple or a simple indulgence,” he quipped.

PepsiCo said it would continue to invest in innovation and marketing to boost consumer demand after its global snack and beverage volumes grew 1% in the fourth quarter.

However, the company reiterated its plans to cut another $1bn in costs this year as part of a broader productivity program.

Mr. Johnston will not comment on any acquisition plans the company might have or say anything about the failed attempt to acquire Chobani Inc, which last week rejected PepsiCo’s offer to buy a majority stake in the U.S. yogurt maker. Chobani’s disclosure fueled speculation that PepsiCo might grow more acquisitive again after laying low in recent years.

Instead, Johnston said, PepsiCo hasn’t shifted its focus from “tuck-in” acquisition of up to around $500m annually. Still he added, “If a deal creates value for PepsiCo’s shareholders, we’re interested in doing it. We look at everything.”

PepsiCo said it expects adjusted 2016 earnings per share to rise to $4.66, from $4.57, despite negative effects of four percentage points from foreign currencies and a negative impact of two percentage points from deconsolidation of its Venezuelan business.

The company said it plans to return $7bn to shareholders in the form of dividends and share buybacks this year, down from $9bn in 2014.

You may also like:

Leave a Reply

Your email address will not be published. Required fields are marked *