On Feb. 13 before the market opened, PepsiCo Inc. (PEP, Financial) reported its earnings for the 2019 fourth quarter and full year.
The company surpassed analyst expectations with non-GAAP earnings per share of $1.45 and revenue of $20.64 billion (up 5.7%). Analysts had expected earnings per share of $1.43 on revenue of $20.27 billion.
Net income of $1.77 billion (for GAAP earnings of $1.26 per share) was down significantly from $6.86 billion in the prior-year quarter due largely to losing a tax boost.
Share prices were down 0.89% to $144.80 in midday trading following the news.
For the full year, revenue came in at $67.16 billion compared to $64.66 billion in 2018, while earnings per share was $5.53 compared to $5.66 in 2018.
PepsiCo is a multinational beverage and food company headquartered in Harrison, New York. It is the owner of the iconic Pepsi soda, as well as other popular brand names such as Lay’s and Quaker Oats. With around two dozen billion-dollar brands under its umbrella, it is one of the largest food and beverage companies, though unlike rival Coca-Cola (KO), it has mostly stayed in the beverage market.
As of Feb. 13, PepsiCo has a market cap of $203.7 billion, a price-earnings ratio of 16.68 and a forward price-earnings ratio of 24.15. According to the Peter Lynch chart, shares are trading slightly above their fair value.
Changes during the quarter
PepsiCo saw its revenue increase in North America (4%), Latin America (5%), Europe (15%), Africa, the Middle East and South Asia (3%) and Asia Pacific and China (8%).
Certain corporate tax benefits from the Tax Cuts and Jobs Act are no longer in effect, so instead of providing a $4.93 billion boost to net income as was the case in the fourth quarter of 2018, taxes took $430 million off of net income in 2019. The act resulted in an unusual spike in PepsiCo’s earnings per share, which should now return to normal levels.
In Europe, PepsiCo acquired SodaStream International, which produces soda machines that turn flat water into carbonated water. The acquisition upped operating profits in its European division.
The company’s revenue has been recovering since 2015, when the increased value of the U.S. dollar caused a 10% currency headwind that ate into international sales. Approximately 40% of PepsiCo’s revenues come from international sales, so its revenues are particularly susceptible to U.S. dollar volatility.
Looking forward
In 2020, PepsiCo plans to transition to 100% renewable energy in its U.S. direct operations, which may give it an edge with eco-conscious customers.
The company has also announced that it will be increasing its annual dividend by 7% to $4.09 per share, effective beginning with the June 2020 payment.
“For 2020, we expect to deliver 4% organic revenue growth and 7% core constant currency EPS growth. We will continue to invest in our business and strive to develop advantaged capabilities that will fortify our business for the long-term,” Chairman and CEO Ramon Laguarta said in the earnings report.
Disclosure: Author owns no shares in any of stocks mentioned.
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