The Year That Was: PepsiCo
One of the world’s largest food and beverage conglomerates, PepsiCo‘s (NYSE:PEP) net sales through the first three quarters of 2016 declined 3%, despite a solid 4% organic growth, due to currency headwinds and structural impacts. Currency translations had a 4 percentage point negative impact on the top line through the first three quarters, since ~44% of the company’s revenue comes from markets outside of the U.S., and with the U.S. dollar appreciating against certain foreign currencies during the year, the translations and, in turn, net sales growth suffered. However, amid the one-time headwinds, PepsiCo’s core business performance remained strong, due to the solid performance of its domestic operations.
Frito-Lay North America is the most valuable divisions for PepsiCo, forming almost 40% of the company’s valuation, as per our estimates. This is mainly as the snacks division holds a massive market share in the U.S. savory snacks market and continues to grow due to Americans’ age-old habit of snacking. This division is also the most profitable for PepsiCo, with the operating margin at 30.5% through the first three quarters of 2016, compared to only 18.3% margin for the overall company during the same period.
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Accompanying the strong growth for the Frito-Lay North America division for PepsiCo is the North America Beverages division. That beverages have been weighing down the company and the strong performing snacks portfolio has long been a point of contention, especially in the last couple of years, when activist investors asked to spin-off the ailing beverages division. However, beverages have been performing strongly, primarily on the back of steady growth for the non-carbonated drinks portfolio. Despite having a drinks portfolio skewed towards the slow-growth carbonated drinks category, PepsiCo has been looking to derive growth from the fast-growing segments such as sports and energy drinks, ready-to-drink tea, and bottled water.
PepsiCo has had a sound 2016 on the back of continual growth for its snacks division and non-carbonated drinks, especially in North America. In addition, good news for the company also came in the form of growth in Russia, once its second-largest market after the U.S. The company derived 8% organic revenue growth in developing and emerging markets in the third quarter, including a 7% revenue growth in Russia, where the consumer is starting to rebound. Strengthening international growth coupled with the solid performance in North America snacks and beverages could help PepsiCo achieve its targeted adjusted EPS growth of 10% for 2016 — an estimate it raised twice during the year.
Have more questions on PepsiCo? See the links below.
- What’s Driving PepsiCo’s Growth This Year?
- PepsiCo Raises Its EPS Guidance For The Second Straight Quarter
- PepsiCo Raises Profit Guidance For The Third Consecutive Year
- PepsiCo Earnings Review: Macroeconomic Headwinds Bring Down An Otherwise Strong Core Performance
- PepsiCo: The Year 2015 In Review
- What’s PepsiCo’s Revenue And EBITDA Breakdown?
- What’s PepsiCo’s Fundamental Value Based On Expected 2016 Results?
- By What Percentage Have PepsiCo’s Revenues And EBITDA Grown Over The Last Five Years?
- Where Will PepsiCo’s Revenue And EBITDA Growth Come From Over The Next Three Years?
- How Has PepsiCo’s Revenue And EBITDA Composition Changed Over 2012-2016E?
- Why Snacks Are More Valuable Than Carbonated Drinks For PepsiCo
- Why Carbonated Soft Drinks Will Contribute Relatively Lower To PepsiCo’s Drinks Business
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