PepsiCo: Volume Growth Continues To Strengthen The Positive Investment Case

Oct. 06, 2016 11:06 AM ETPepsiCo, Inc. (PEP)KO8 Comments
Dividend Drive profile picture
Dividend Drive


  • PEP's H1 2016 performance impressed me immensely, especially with regard to volume growth performance.
  • Encouragingly, Q3 2016 appears to have continued that positive volume growth momentum.
  • With strong cash flow generation and shareholder return potential combined with volume growth, PEP is looking increasingly attractive for long-term investors.

Back at H1 2016 time, snacks and beverages giant PepsiCo (NASDAQ:PEP) impressed me a great deal. I must admit to having largely overlooked the company up to that point. Yet PepsiCo was certainly thrust firmly back onto my watch list after its first-half performance.

What particularly appealed was the strength of its volume growth performances, which underpinned the more consistent appeal of its cash flow. Yet has PEP managed to stretch this attractive performance across Q3 2016 as well?

I argue that it has, and it would seem that (combined with other considerations) this leaves the increasingly positive investment case for this consumer defensive giant stronger than ever. Let me explain why here.

Top and Bottom Line Strength

A pleasant surprise to begin with. PepsiCo managed some very robust looking figures both from a reported and organic basis:

Needless to say, the practically doubled operating income catches anyone's eye quite quickly. Unsurprisingly, there was an extraordinary catalyst to this particular leap: Venezuela. Operating income was lifted massively, courtesy of the Venezuela write-down last year. Indeed, 91% of the lift in Q3 2016 was due to this.

Of course, it is the organic figures that are really of interest. Cutting out the effect of acquisitions, divestitures, currency fluctuations etc. shows that PepsiCo was able to put together some pretty robust underlying growth. Sure, it has run a little behind that seen in recent years:

Nonetheless, Q3's acceleration over H1 2016 suggests it is entering H2 2016 with some more promising momentum. Indeed, PepsiCo is anticipating that it will leave 2016 with 4% organic revenue growth. For me, that is a good set of results and the predictions seem more than fair with the possibility of being, in fact, a little conservative.

Volume Growth also Robust

What impressed me most in H1, however, had

This article was written by

Dividend Drive profile picture
A UK-based investor focusing on analysing and investing in attractive high quality, cash-generative businesses with strong dividend growth prospects.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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