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PepsiCo earnings top estimates, but 2020 outlook below Wall Street expectations

Key Points
  • PepsiCo topped Wall Street estimates for its fourth-quarter earnings and revenue.
  • The food and beverage giant reported organic revenue growth of 4.3%.
  • Pepsi expects 4% organic revenue growth for 2020.
PepsiCo CFO on fourth-quarter earnings results, revenue growth and more
PepsiCo CFO on fourth-quarter earnings results, revenue growth and more

PepsiCo on Thursday reported quarterly earnings and revenue that topped analysts' expectations after strong performances by its North American beverage and snack divisions.

But investors focused on the company's forecast for 2020, which was weaker than analysts had expected, and shares rose less than 1% in premarket trading.

Here's what the company reported compared with what Wall Street was expecting, based on a survey of analysts by Refinitiv:

  • Earnings per share: $1.45, adjusted, vs. $1.44 expected
  • Revenue: $20.64 billion, vs. $20.27 billion expected

In 2020, Pepsi expects 4% organic revenue growth and 7% earnings per share growth after stripping out currency fluctuations. The company is forecasting adjusted earnings per share of $5.88 for the year, shy of the analysts' forecast of $5.95. The beverage and snack giant cited foreign currency as an expected headwind for 2020.

"The world is certainly a volatile place, lots of events going on in a lot of areas of the world, even as noted a bit with some of the news this morning," CFO Hugh Johnston told analysts. "That said, we take the fact that we have, and we always try to plan for at least some level of volatility as a part of developing our expectations for the year, because most years will have some volatility."

The company, whose products include Frito snacks, reported fiscal fourth-quarter net income of $1.77 billion, or $1.26 per share, down from $6.85 billion, or $4.83 per share, a year earlier.

Excluding items, Pepsi earned $1.45 per share, topping the $1.44 per share expected by analysts surveyed by Refinitiv.

Net sales rose nearly 6% to $20.64 billion, beating expectations of $20.27 billion. Organic revenue, which excludes the impact of acquisitions and divestitures and currency, rose 4.3% during the quarter.

Frito-Lay and Pepsi's North American beverage unit both reported organic sales growth of 3%. Frito-Lay's volumes increased by 2% in the quarter. Organic sales for Quaker Foods North America, which includes Aunt Jemima syrup and Life cereal, were unchanged from a year earlier.

Outside of the U.S., Pepsi's international units reported strong organic revenue growth. In both Europe and Latin America, organic sales jumped 6% from a year ago. Its business in Africa, Middle East and South Asia saw organic sales growth of 8%, and organic sales for its Asia Pacific, Australia and New Zealand and China unit rose 9% in the quarter.

Johnston said that Pepsi closed all of its Chinese plants "for a short period of time" in response to the coronavirus outbreak and all but one have reopened. China represents about 2% of Pepsi's business, he said.

To drive organic sales, Pepsi has been spending more on advertising and marketing, giving a boost to legacy brands like Gatorade and newer portfolio additions like Bubly.

"If you saw the Super Bowl, it was awfully hard to miss us, and certainly hard to miss our beverage ads," Johnston said on CNBC's "Squawk on the Street."

The company is also trying to grow its e-commerce business, which accounted for nearly $2 billion in retail sales in 2019, falling just short of its target.

Drink launches slated for 2020 includes Zero Sugar versions of Mountain Dew and Mountain Dew Game Fuel and the release of Pepsi Cafe and Bubly sparkling water with added caffeine. Rival Coca-Cola is launching its own sparkling water line AHA, which will include caffeinated flavors, later this year.

Pepsi also said it would increase its dividend by 7% to $4.09 per share from $3.82 per share. The change will go into effect in June.

Read the full press release here.

Correction: PepsiCo reported revenue of $20.64 billion. An earlier version of this story misstated the number.

PepsiCo organic revenue grew by 4.3% in the fourth quarter
PepsiCo organic revenue grew by 4.3% in the fourth quarter