Dr. Pepper Snapple Group CEO Larry Young believes the “uncertainty” that Trump’s policies present with regards to Mexico will hurt earnings in 2017.
In the beverage maker’s fourth-quarter 2016 earnings call on Tuesday, Young said that he expected foreign currency to “negatively impact our results in 2017.”
“The combined effect of both foreign currency translation and transactions is expected to reduce core EPS by approximately $US0.11 for the year, primarily driven by the Mexican peso,” he said in the call.
He goes on to say that the Mexico peso averaged 19.83 per dollar in the fourth quarter, but that they are now planning on an average of MXN 22.53 for all of 2017, representing a forecasted 14% depreciation. This is about 10% weaker than current spot rates.
Young admits that the company is not in the business of currency forecasting, but “believes it warranted under the circumstances.”
In addition, the uncertain economic and consumer environment in Mexico has led the company to lower core EPS expectations by other $US0.03. Fink cites the 17%-18% fuel increase by PEMEX impacting transportation costs both on the company and the consumer level as well as the uncertain impact of a border wall.
Mexico is particularly important to Dr. Pepper Snapple Group. The country is the world’s largest consumer of carbonated soft drinks and accounts for 8% of Dr. Peppers’ volumes, according to a Forbes article in 2014.
The Mexican peso has rallied since Trump’s inauguration but is still down approximately 13% year-over-year since January 2016.
Dr. Pepper Snapple Group is one of many companies citing President Trump’s potential policies as a roadblock. Analysts also pointed at Chipotle “bearing the biggest brunt” from a proposed 20% tariff on Mexican imports.
The beverage maker reported a profit for its fourth quarter that climbed compared to the same period last year. Its bottom line rose to $US192 million, or $US1.04 per share. This was higher than $US190 million, or $US1.00 per share, in last year’s fourth quarter.
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