PepsiCo’s Q3 profit rise despite revenue decline

PepsiCo, the soft drinks giant said on Thursday that third-quarter net profits rose 274% to $1.99bn, from $533m in the previous year. The maker of Mountain Dew, Pepsi, and Frito-lay among others said that 2015 results were weighed down by a $1.36bn Venezuelan impairment charge.

Despite the profit rise, revenue for the quarter declined 1.9% to $16.03bn, down from $16.33bn a year earlier. It would be the eight consecutive quarter of revenue decline for the soft drink giant, a sign of challenges the company faces due to the strength of the dollar and currency headwinds abroad. Weaker foreign currencies and the Venezuelan deconsolidation each had a negative impact of 3% in the most recent quarter under review.

The Chief Executive Officer of PepsiCo, Indra Nooyi, said that the global economy remains “troubled”, but was “cautiously optimistic” about developing and emerging markets after seeing recent improvements.

The company said that its recent quarterly results was buoyed by a 2% volume growth in its North American division, where sales of healthier beverage alternatives and snacks such as Naked juices, Sabra dips and Quaker oatmeal helped offset an ongoing decline in soft drinks consumption in the US.

Nooyi had noted earlier this year that the company gets less than 25% of its revenue from soft drinks, compared to Coca-Cola which depends on soft drinks for nearly 75% of its revenue.

Regionally, PepsiCo said that its Frito-Lay North American division and the North American Beverage unit returned 3% growth respectively, with revenue rising to $3.7bn and $5.5bn respectively in each division. Frito-lay North America was helped by productivity gains and lower raw material costs, which partially offset certain operating cost increases and higher advertising and marketing expenses.

However, the soft drinks and snacks maker saw a more subdued market in Latin America as revenue declined 23% due to the effect of Venezuela deconsolidation, higher raw material costs in local currencies, adverse foreign currency translations and higher advertising and marketing expenses.

In Europe Sub-Saharan Africa region, revenue fell 2% to $2.8bn, from $2.9bn in 2015. The region was negatively impacted by higher raw material costs in local currency terms, inflationary pressure, adverse foreign exchange translation and higher advertising and marketing expenses.

Asia, Middle East and North Africa saw marginal revenue increase of $1.636bn, from $1.632bn in the previous year. The region was weighed by higher operating cost inflation, higher advertising and marketing costs, re-franchising of a portion of the company’s Indian business and a 3% impairment charge in a joint-venture business in the Middle East.

Based on its performance, the company raised its guidance estimate for the year to $4.78 per share, from $4.57 it recorded in 2015 and up from its July estimates of $4.71 per share. It predicted a 2% deconsolidation charge from its Venezuelan operations and a 3% negative foreign exchange translation for the year.

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