Solid Earnings from PepsiCo Point to Continued Growth Overseas

PepsiCo (NYSE: PEP) reported earnings last week, and the beverage and snack purveyor posted solid results:

• Net revenue of $12.7 billion, up from $12.0 billion (4% increase year-over-year)
• Net income of $1.34 billion, up from $1.32 billion (2% increase YOY)
• Earnings of $0.94 per share, up from $0.91 per share (3% increase YOY)

If you’ll recall from a few weeks ago, the main thing I was watching for in my investment in PepsiCo was its non-soda business (through its ownership in Frito Lay and Quaker Foods) and its impact on the bottom line as people drink less sugary drinks in general. The company specifically mentioned a decrease in operating profit for both segments during the quarter, primarily driven by cost inflation and bonuses paid in response to the Tax Cuts and Job Act. However, productivity gains helped offset the losses felt, with Frito Lay and Quaker Foods showing an overall increase in 3% between the two segments.

PepsiCo’s prospects were elevated by its performance outside of North America, with operating profit in Latin America up 42%, Europe and Sub-Saharan Africa up 23%, and Asia, Middle East, and North Africa up 10%. Nevertheless, overall performance in North America was still down 7%, so in the long-term, PepsiCo and its investors will have to hope that the strong performance shown outside of North America continues to drive the success of the company, especially since North America continues to make up nearly 70% of the company’s total revenue.

But we shouldn’t judge a company solely on what they have done in the past. An investment should be considered based on what it looks like the future of the company holds. Based on these results, PepsiCo reiterated its forecast for the year. It expects full-year revenue to grow by at least 2.3% over 2017 revenue, which would result in revenues approaching $65 billion. Annual earnings per share are expected to be $5.70, which would be a 9% increase over 2017.

PepsiCo’s P/E is currently around 19, so we should expect to see a price at year end of around $108, which would be around 9% upside. Factor in a dividend yield over 3%, as well as a fairly large stock repurchase plan, PepsiCo investors should be happy should they hold shares long-term. I plan on monitoring the performance of the food business, as well as international growth, but I don’t think there are any indications from these results that it is time to sell the shares I own.

Until next time…

Disclosure: I have purchased shares of PepsiCo on behalf of my mother and have no intentions of adding or selling shares over the next 30 days. Please read my full disclosure here.