Stronger U.S. Dollar Affecting Blue-Chip PepsiCo’s 4Q14 Results

Blue-Chip 4Q14 Earnings ReportsThere are still countless earnings reports coming in, many of which are from smaller companies that often take longer to report their numbers. For the most part, the market pretty much ignored fourth-quarter earnings, yawning at the numbers with sentiment beaten down by oil prices, eurozone worries, and growth prospects in China.

But it’s still useful to consider what corporations are saying about their businesses. The stock market has already gone up and we could very well see no capital gains this year, but outlooks are holding up fairly well.

Strong U.S. Dollar Affecting Blue Chip Numbers

PepsiCo, Inc. (PEP) is a company that I like to watch for medium- to long-term investors requiring income or dividend reinvestment. The company’s latest numbers beat the Street and management effected a solid increase to its quarterly dividend. But as we’ve seen with so many other corporations with large international operations, with the stronger U.S. dollar, currency translation is having a material effect.

PepsiCo’s fourth-quarter sales grew five percent organically over the fourth quarter of 2013, but after currency translation, total revenues produced a comparable drop of one percent to $19.95 billion.

Earnings actually fell 25% to $1.31 billion, or 23% on a diluted earnings-per-share basis to $0.87. The numbers actually beat Wall Street consensus and the stock went up on the news.

PepsiCo’s been a solid wealth creator over the last several years, both in terms of capital gains and dividend income. The company’s three-year stock chart is featured below:

This year, management expects further organic sales growth in the mid-single-digits, but it will be mitigated by currency translation.

Just like so many other businesses dealing with the same problem, in order to keep shareholders happy, management just announced a 7.3% increase to its annualized dividend and a new share repurchase program to the tune of $12.0 billion, expiring June 2018. Last year, PepsiCo bought back $5.0 billion of its own shares, and the company paid out $3.7 billion in dividends. (See “These Dividend-Paying Stocks Your Best Bet Right Now?”)

PEP Pepsico NYSE Chart

Chart courtesy of www.StockCharts.com

PepsiCo is a good example of the type of blue-chip business that’s appropriate for those long-term investors with less tolerance for equity investment risk. The company is experiencing top-line growth (surprisingly in Europe in the fourth quarter), but currency translation is taking its toll.

Having the snacks and foods business is a good compliment to the company’s core beverages business. Some institutional investors want the company to split up these divisions. The results would likely be beneficial to stockholders. If this were to happen, though, it would be a surprise, as management has made it clear that’s not in the cards currently.

Dr Pepper Snapple Group, Inc. (DPS) has actually been a great holding in recent years, handily outperforming PepsiCo. The Coca-Cola Company (KO) is the underperformer of the group; this company’s growth is at a standstill.

I view PepsiCo as an example of the type of better enterprise equity investors could consider on price retrenchments. It’s not a big growth story, but it’s a good example of the type of solid income play with staying power in terms of investment risk that investors should add to their watch lists.