Daily Management Review

Pepsi Shares Fall As It Blames Global Macro Concerns For Weak Outlook


Pepsi Shares Fall As It Blames Global Macro Concerns For Weak Outlook
Due to weakness in the international markets, particularly in developing regions such as Asia, Middle East and North Africa, the 2017 adjusted earnings forecast was put below the estimates of analysts by PepsiCo Inc.
Noting a growth rate slower than the 3.6 percent in 2016, the company said it expected organic sales growth of 3 percent this year.
This adjusted forecast resulted in a fall in the share price of the company by 2 percent to $104.77 in early trading on Wednesday despite the fact that the company had reported a better-than-expected fourth-quarter profit.
"I think our 3 percent revenue guidance reflects just a cautious outlook toward the macros globally, as well as a reflection of what is a more volatile world," Chief Financial Officer Hugh Johnston said on a call with analysts.
His counterpart at bigger rival Coca-Cola Co. also echoed Johnston's comments.
With "continued macroeconomic challenges in the emerging and developing world and continued growth in the developed world", the company expected global environment this year to be roughly similar to that of 2016, Coca-Cola's CFO Kathy Waller told analysts last week. The company expects to miss the average analysts' estimate of $5.16 for its forecast for 2017 for adjusted earnings and said it would be around $5.09 per share.
Partly due to the volatility in its Asia, Middle East and North Africa market and the early arrival of the Chinese New Year holiday, the first-quarter organic revenue of the company would decline, Johnston said. The holiday was included in the company's 2016 results which had come 10 days earlier this year compared to other years.
For the slower sales growth forecast, one extra week in 2016 was also cited by PepsiCo.
The company's tepid forecast was however downplayed by analysts.
"Pepsi is sticking with its "under-promise, over-deliver" playbook, which has served it well," Jefferies analyst Kevin Grundy wrote.
"Given Pepsi has exceeded its initial core constant currency EPS guidance by about 2 percent in recent years, we expect the company's earnings outlook to move up as we move through FY17," he said.
Due to the fact that the company benefited from cost-cutting programs and higher demand for its healthier beverages and snacks in North America, the maker of Gatorade and Doritos chips beat analysts' quarterly profit estimate.
The company says that consumers are increasingly seeking healthier options such as sodas with low sugar and calorie content and snacks with more natural ingredients and hence it has been investing heavily in developing products to meet the changing tastes of consumers just like other processed-food makers.
There was a rise of 8 per cent in the fourth quarter ended Dec. 31 in the net revenue in PepsiCo's North America beverages unit, the company's biggest business. There was also a rise of 1 per cent in the volume sales in the unit.
Partly due to pension-related settlement and a debt redemption charge, in the same quarter, the net income attributable to PepsiCo, however, fell 18.6 percent to $1.40 billion, or 97 cents per share.
PepsiCo earned $1.20 per share excluding items. There was rise of 5 per cent in the net revenue to reach $19.52 billion.