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PEPSICO INC Annual Report, Year Ended Dec 31, 1994

Filing Date
Filed March 28, 1995
Period End
December 31, 1994
Security
PEP
In the record · 2016–202610-K1110-Q338-K145

PEP filed 11 annual reports (10-K), 33 quarterly reports (10-Q) and 145 current reports (8-K) between 2016 and 2026.

  1. Material agreement8-K · Jun ’16Jun ’16
  2. FY2018 annual report10-K · Feb ’19Feb ’19
  3. Leadership change8-K · Aug ’21Aug ’21
  4. Leadership change8-K · Dec ’25Dec ’25

01—Abstract

Summary

Summary of the 10-K filed March 28, 1995. Cited figures are marked; the original filing is the authoritative source.

PepsiCo's 1994 10-K shows a company still growing strongly on the top line and bottom line, though with a clear warning flag from Mexico.

Net sales rose 14% to $28.5 billiona (helped by a 53rd week worth about 2 points of growth), operating profit rose 10% to $3.2 billion, and income before cumulative accounting effects reached $1.78 billion, or $2.22 per share, up 13%. Excluding unusual items, income per share grew 9%. Reported net income of $1.75 billion ($2.18 per share) was reduced by a net $32 million cumulative accounting charge tied to postemployment benefits (SFAS 112) and partly offset by a pension accounting benefit.

International operations, now 29% of sales, drove much of the expansion, but the late-1994 Mexican peso devaluation is a major concern. Management expects it to reduce 1995 earnings, cash flow, and international profit contributions, and it cut about $275 millionb from shareholders' equity through currency translation. Cash generation remained strong, with operating cash flow of $3.7 billion funding $2.3 billion of capital spending, $540 million of dividends, and $549 million of share repurchases.

Leverage rose: the market net debt ratio climbed to 26%c from 22%, above management's 20-25% target range, mainly because the stock price fell 13% during the year. Return on average shareholders' equity stayed high at 27.0%. The restaurant segment is a weak spot, with profit down 6% and management evaluating options such as selling company-owned units to franchisees.

Management also expects the 1995 tax rate to stay at or below 35%, but a proposed change to Puerto Rico concentrate tax rules (Q&A 12) could cost about $112 milliond, or $0.14 per share, if enacted. Overall, PepsiCo's core beverage and snack franchises remain strong, with rising volumes and improving international profits in several regions. Investors should weigh that against the near-term Mexican shock, a higher debt load, restaurant underperformance, and possible tax headwinds.

02—Key points

Key Highlights

  1. Net sales increased 14% to $28.5 billion in 1994, including about 2 points from a 53rd fiscal week; international sales grew 23% and now make up 29% of total sales.
  2. Operating profit rose 10% to $3.2 billion; excluding unusual items, it grew 9%, supported by $850 million from higher volumes.
  3. Income before accounting changes was $1.78 billion ($2.22 per share), up 13%; reported net income was $1.75 billion ($2.18 per share) after a net $32 million cumulative accounting charge.
  4. Operating cash flow reached $3.7 billion, funding $2.3 billion in capital spending, $540 million in dividends, and $549 million in share buybacks.
  5. The Mexican peso devaluation is expected to hurt 1995 results: Mexico contributed about 8% of segment operating profit in 1994, and the devaluation reduced shareholders' equity by about $275 million through currency translation.
  6. Market net debt ratio rose to 26% from 22%, above the company's 20-25% target, mainly because the share price fell 13%.
  7. Restaurant segment profit fell 6% to $730 million, and management is weighing a reduced company share of new unit development and sales of company units to franchisees.

03—Questions

Frequently Asked Questions

  1. How did PepsiCo perform financially in 1994?

    Net sales grew 14% to $28.5 billion and operating profit grew 10% to $3.2 billion. Income before accounting changes rose 13% to $1.78 billion, or $2.22 per share. Results benefited from a 53rd week and from international growth, though the restaurant segment lagged.

  2. What is the main risk to PepsiCo's 1995 outlook?

    The late-1994 devaluation of the Mexican peso. Management expects lower earnings from Mexico and affiliates, weaker cash flow, and a possible reduction in international profit share. Because of the many uncertainties, the company said it could not quantify the full impact.

  3. Is PepsiCo's balance sheet getting more leveraged?

    Yes, somewhat. The market net debt ratio rose to 26% from 22% and is now above the 20-25% target range, largely because the stock price fell. On a historical cost basis, the net debt to net capital employed ratio improved slightly to 49% from 50%. Management says it retains continued access to capital markets.

  4. Are there tax risks that could affect future earnings?

    Yes. A proposed Treasury change to Q&A 12 would reduce tax benefits on Puerto Rico concentrate operations. If enacted as proposed, 1994 earnings would have been reduced by about $112 million, or $0.14 per share, under the 60% credit limit. Management expects the 1995 tax rate to be no higher than 35%, but volatility is possible depending on timing.

  5. Why is the restaurant business a concern?

    Restaurant segment profit fell 6% to $730 million, and Pizza Hut profit dropped 21%, mainly due to lower volumes and weaker pricing. Management is considering reducing company ownership of future restaurant development and selling some company-owned units to franchisees, with decisions expected in 1995.

04—Continue

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