PepsiCo: Q3 Results & Suspicious Share Repurchases

PepsiCo (PEP) released its 3rd quarter results yesterday…  How did it go?

Here’s what CEO Indra Nooyi had to say:

“We are pleased with our performance for the third quarter of 2015. Despite ongoing volatility in many of our key international markets, we delivered strong organic revenue growth, gross margin expansion and double-digit core constant currency EPS growth(emphasis added).”

PepsiCo released another quarter of excellent results.  The company saw core constant currency earnings-per-share grow 14% versus the same quarter a year ago.

The company also raised its 2015 guidance to constant currency core earnings-per-share growth of 9% for fiscal 2015.

PepsiCo has long been a favorite of The 8 Rules of Dividend Investing due to its stability, above-average dividend yield, and growth.

Is PepsiCo Rewarding Shareholders Too Much?

PepsiCo is expecting more than $10 billion in cash flows from operations in fiscal 2015.  PepsiCo investors should be happy with what the company plans to do with its $10 billion in operating cash…

The company plans to return around $9 billion to shareholders in fiscal 2015 in the form of dividends and share repurchases.

About $4 billion will be returned to shareholders in the form of dividends, and $5 billion in the form of share repurchases.

The company currently has a 2.9% dividend yield.  Dividend payments are nothing new to PepsiCo shareholders.  The company has paid increasing dividends for 43 consecutive years.

PepsiCo is currently trading for an adjusted price-to-earnings ratio of 21.0.  The company is by no means cheap at current prices.  Over the last decade, PepsiCo has traded for an average price-to-earnings ratio of 18.6.

Based on the company’s current price-to-earnings ratio in relation to its historical average price-to-earnings ratio, PepsiCo appears to be slightly overvalued or trading at the upper end of fair value.

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Author: Travis Esquivel

Travis Esquivel is an engineer, passionate soccer player and full-time dad. He enjoys writing about innovation and technology from time to time.

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