Is Pepsi Losing Its Pop?

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When PepsiCo Inc. (NASDAQ: PEP) reported its most recent quarterly results before the markets opened on Tuesday, the company said that it had $1.31 in earnings per share (EPS) on $19.53 billion in revenue. That compares with consensus estimates from Thomson Reuters of $1.30 in EPS on revenue of $19.35 billion. The same period of last year reportedly had EPS of $1.20 and $19.52 billion in revenue.

During the fourth quarter, Pepsi noted provisional net tax expense of $2.5 billion associated with the enactment of the Tax Cuts and Jobs Act. Included in the net tax expense is a provisional mandatory one-time transition tax of roughly $4.0 billion on undistributed international earnings, partially offset by a provisional benefit of $1.5 billion resulting from the required remeasurement of its deferred tax assets and liabilities to the new, lower U.S. corporate income tax rate.

In terms of its segments, the company reported as follows:

  • Frito-Lay North America net revenues shrank 1% to $4.83 billion.
  • Quaker Foods North America net revenues dropped 5% to $774 million.
  • North America Beverages net revenues dropped 6% to $5.90 billion.
  • Latin America net revenues increased 6% to $2.44 billion.
  • Europe Sub-Saharan Africa net revenues increased 11% to $3.70 billion.
  • Asia, Middle East and North Africa net revenues were flat at $1.89 billion.

Looking ahead to 2018, the company expects to see organic revenue growth in line with the 2017 rate, as well as core EPS of $5.70. The consensus estimates call for $5.67 in EPS and $65.62 billion in revenue for the year.

Indra Nooyi, board chair and chief executive, commented on the tax status:

The provisions of recently enacted tax legislation are expected to result in lower income taxes in 2018 for our operations in the United States, our largest market. We expect the benefits of the TCJ Act will enable us to further strengthen our business by enhancing the skills of our front line associates to ready them for the future; adding new digital and ecommerce capabilities to become more competitive; accelerating capital investments to add manufacturing capacity and make our operations more efficient; and enhancing cash returns to our shareholders over time.

Shares of PepsiCo were last seen down 0.3% at $111.56, with a consensus analyst price target of $106.5 and a 52-week range of $104.77 to $122.51.