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PepsiCo Q3 Profit Tops Estimates; Ups FY EPS View, Cuts Organic Revenue Forecast

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Beverages giant PepsiCo, Inc. (PEP) on Wednesday recorded higher third-quarter earnings, above market estimates, while top line missed their view, despite a slight increase. Further, the company lifted its forecast for fiscal 2017 core earnings per share, above market, while trimmed outlook for organic revenue growth rate.

Chairman and CEO Indra Nooyi said, "Overall, our businesses performed well in the third quarter in what continues to be a challenging environment. Each of our operating sectors delivered results in line with or ahead of our expectations, with the exception of North America Beverages where revenues declined following two consecutive years of very strong third-quarter growth..... Although we have moderated our full-year organic revenue growth outlook, we are now on track to exceed the full-year earnings per share target we set at the beginning of the year."

For fiscal 2017, PepsiCo now expects core earnings per share of $5.23, higher than previous estimate of $5.13. In the prior year, core earnings per share were $4.85.

On average, 23 analysts polled by Thomson Reuters expect earnings of $5.16 per share for the year. Analysts' estimates typically exclude special items.

Further, the company now expects full-year organic revenue growth to approximate year-to-date growth rate of 2.3 percent, compared to previously expected growth of at least 3 percent.

The foreign exchange translation is now expected to negatively impact reported net revenue growth by about 1 percentage point, compared to previously expected 2 percentage points

Further, the company continues to expect approximately $10 billion in cash flow from operating activities and approximately $7 billion in free cash flow, and share repurchases of approximately $2 billion.

For the third quarter, attributable net income increased 8 percent to $2.14 billion from last year's $1.99 billion. Earnings per share were $1.49, up 9 percent from $1.37 year ago.

Core earnings were $2.13 billion or $1.48 per share, compared to $2.04 billion or $1.40 per share a year earlier. Analysts expected earnings of $1.44 per share for the quarter.

In the quarter, operating profit increased 6 percent from last year to $2.99 billion, and core constant currency operating profit increased 4 percent. Operating margin expanded 80 basis points and core operating margin expanded 30 basis points.

Gross profit edged up 1 percent to $8.87 billion. Reported gross margin expanded 10 basis points, while core gross margin contracted 15 basis points.

The third-quarter net revenues increased 1.3% to $16.24 billion from prior year's $16.03 billion. Analysts expected revenues of $16.31 billion.

Organic revenue growth was 1.7 percent.

In the quarter, Frito-Lay North America, Quaker Foods North America, Latin America and Europe Sub-Saharan Africa segments posted higher net revenues. These were partly offset by weak results at North America Beverages hurt by operating cost inflation, and Asia, Middle East and North Africa.

In pre-market activity, shares were trading at $109.69, down 0.51 percent.

by RTT Staff Writer

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