PepsiCo Offers Up a Cautious Outlook for 2017

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Source: The Money Fool

Packaged food and beverage titan PepsiCo completed a year-long trend of meeting and exceeding its own revenue and earnings targets when it released fourth-quarter 2016 results on Wednesday. However, the company also issued a rather muted outlook for 2017, due to management's cautious attitude toward the global macroeconomic environment in 2017.

PepsiCo results: The raw numbers

DATA SOURCE: PEPSICO.

What happened with PepsiCo this quarter?

• Net revenue increased 5%, bringing total 2016 revenue to $62.8billion. Versus last year, PepsiCo's top line was essentially flat, as the company recorded $63.1 billion in revenue in 2015.

• Organic revenue, or reported revenue adjusted for items such as currency effects and acquisitions, as well as a 53rd reporting week in calendar 2016,increased by 3.7% for both the quarter and the full year. This met the company's goal of achieving "approximately 4%" organic revenue growth in 2016.

• Operating income expanded by roughly 5% versus Q4 2015. The change resulted almost entirely from the leverage contributed by additional sales, as both gross margin and operating margin were flat for the quarter.

• As has been the case all year, PepsiCo's two largest divisions, Frito-Lay North America (FLNA) and North America Beverages (NAB), helped pace overall company performance, posting organic revenue growth during the quarterof 3% and 2%, respectively. Together, FLNA's sales of $4.9 billion and NAB's sales of $6.3 billion comprised 57% of PepsiCo's total top line in Q4 2016.

• During the company's earnings conference call with analysts, management pointed to several visible results of its effort to liberate itself from the fortunes of its declining soda volumes. CEO Indra Nooyi noted that Naked Juice is close to becoming the company's next "$1 billion brand," and also revealed that in 2016, the company's "Everyday Nutrition" products made up 25% of net revenue, versus just 12% for the Pepsi-Cola trademark.

• PepsiCo raised its dividend by 7% to $3.22 per share, effective with the upcoming June 2017 dividend. This will increase the effective yield on PepsiCo stock from 2.8% to 3%, given the current share price.

PEPSICO'S "EVERYDAY NUTRITION" PORTFOLIO. IMAGE SOURCE: PEPSICO.

What management had to say

After meeting its full-year target of roughly 4% organic growth, management provided a more moderate 2017 outlook on Wednesday. The company expects 3% organic revenue growth this year, and adjusted EPS of $5.09, which would represent a 5% gain over 2016.

This slight downshift in forecast performance is due partially to expectations of continued currency effects, which have weighed on PepsiCo's results over the past two years. But it also reflects a more skeptical attitude from management about the current global environment for consumer-goods companies. In response to an analyst's question on Wednesday's conference call, CFO Hugh Johnston was quick to point out the general nature of PepsiCo's guarded outlook:

... nothing specific in terms of anything attached to PepsiCo's business performance, I think our 3% revenue guidance reflects just a cautious outlook on the macros globally, as well as a reflection of what is even a more volatile world relative to the volatility that we've seen in the past few years. So the combination of that increased volatility relative to the recent past, and our general caution as we provide guidance at this time of the year, has led us to the ... at least 3% growth outlook.

Looking forward

It's worth observing that PepsiCo's management has consistently issued conservative guidance over the last several quarters, as Johnston alluded to. As we look forward to Q1 2017 results, it's also pertinent to note that PepsiCo has made exceeding its own guidance something of a pattern in recent earnings reports as well.

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