PepsiCo (PEP) surprised investors Monday with a first quarter earnings report that came in above expectations, though sales fell, impacted by the company’s overseas business. Excluding the impact of the strong US dollar, which hurt sales by 4.5 percentage points, sales rose 3.5%.
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Cost of sales fell 6.4 percent, with the company benefiting from lower prices of raw materials, including sugar.
“Foreign exchange translation had a 4.5 percentage point unfavorable impact”, and separating its Venezuela operations due to difficulties converting local currency to dollars “had a 2 percentage point unfavorable impact on reported net revenue”, PepsiCo said. “I think the USA business can continue to perform quite strongly”. The stock was up 3.9 percent this year through last week.
Operating profit at the North American beverage unit rose 7% as volume and revenue rose 1% and 2%, respectively.
Looking ahead, for fiscal 2016, Pepsico continues to project core earnings per share of $4.66, compared to last year’s $4.57 per share. The company removed aspartame from Diet Pepsi in August, announced a partnership with smoothie maker BarFresh Food Group Inc.in October and introduced a line of healthy vending machines in December.
Sales in Europe and sub-Saharan Africa declined 9.1 percent to about $1.36 billion.
Total carbonated soft drink volume for the industry declined 1.2% in 2015, an acceleration from 2014’s 0.9% drop, as PepsiCo, Coca-Cola (KO – Get Report) and Dr. Pepper Snapple (DPS – Get Report) all reported falling demand, said Beverage Digest. That move could have helped reignite growth in PepsiCo’s Quaker Food North America unit, which saw sales fall 3.4 per cent to $617 million last quarter.
PepsiCo altered its US management structure last month, combining its domestic beverage and snack units under one leader, Al Carey.
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“It’s a hard environment”, Chairman and Chief Executive Indra Nooyi told analysts on an earnings call, adding globe-trotting businesses could face “sustained volatility and uncertainty”.
