Pepsi Pops On Strong Growth and Positive Guidance

Pepsico(NYSE:PEP) stock climbed as much as 1.75 percent in pre-market trading and advanced as much as 5.0 percent in early-morning trading after reporting first-quarter 2013 results. At a glance, the food and beverage company beat top- and bottom-line expectations. However, restructuring and integration charges, and a devaluation of assets in Venezuela, and a small loss on commodity hedges weighed on profit.

Fueled by 4.4 percent organic growth, reported revenue grew 1.4 percent on the year to $12.58 billion. Analysts polled by Thomson Reuters were looking for revenue of $12.53 billion. Cost of sales decreased about 1 percent on the year to $5.83 billion, although SG&A costs climbed 6 percent, ostensibly fueled by revitalized marketing efforts. Operating profit fell 4 percent to about $1.66 billion. All told, reported net income declined 3 percent to $0.69 per share. Excluding the various charges, core earnings clocked in at $0.77 per share.

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It’s important to point out the significant impact of the devaluation of assets in Venezuela, which took a $0.07 per-share bite out of earnings. It its earnings release, Pepsico commented that: “In the quarter ended March 23, 2013, we recorded a $111 million net charge related to the devaluation of the bolivar fuerte for our Venezuela businesses. $124 million of this charge was recorded in corporate unallocated expenses, with the balance (equity income of $13 million) recorded in our PAB segment.”

This devaluation was also a contributing factor to a 70 basis-point decline in reported operating margin. On the other side of the equation, core operating margin increased 80 basis points…

Also important to point out is a relatively attractive guidance for 2013 — although this bit of good news is unsurprising. The company, ever forward looking, has been forecasting a strong 2013 for a while. Pepsico is looking for 7 percent core (constant currency) year-over-year earnings growth over its 2012 earnings of $4.10 per share, which equates to about $4.39 per share. This is in line with current analyst estimates for full-year earnings.

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Excluding forex losses, Pepsico is guiding organic revenue growth in the mid-single digits. Structural charges (primarily beverage refranchisings) are expected to negatively impact growth by about 1 percent. In line with the company’s advertising / marketing push, it expects advertising costs to increase at the same rate as, or faster than, revenue.

To round it all out, the company expects to return a total of $6.4 billion to shareholders through the end of the year in the form of dividends and a $3.0 billion share buyback program.

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