How much of the 2000 earnings growth was due to the 53rd week, and what is the underlying growth rate?

The extra week added an estimated $294 million to net sales, $62 million to operating profit and $44 million (about $0.03 per share) to net income. Excluding it, comparable net income rose 16% and comparable EPS rose 18% to $1.45, so the underlying growth is roughly in line with the reported figures but modestly smaller in absolute terms.

What are the key terms and risks of the Quaker Oats merger for PepsiCo shareholders?

PepsiCo would issue about 315 million shares, roughly 18% of post-merger shares outstanding, which dilutes existing holders' ownership. The exchange ratio is fixed at 2.3 shares per Quaker share up to a $105 maximum value; Quaker may terminate if the value falls below $92. Risks include shareholder and regulatory approvals (the FTC has requested more information), integration costs beyond the roughly $100 million in transaction expenses, and the pooling-of-interests structure, which required PepsiCo to sell 15 to 20 million repurchased shares before closing.

Why is the 2000 reported profit growth different from 1999 and how should investors read the comparisons?

The 1999 results include a $1.0 billion pre-tax gain (about $270 million after tax) from bottling transactions, and 1999 bottling operations were deconsolidated into equity affiliates such as PBG and PepsiAmericas. Reported net sales were flat year over year ($20.4 billion vs. $20.4 billion) because of the deconsolidation, so investors should focus on the comparable measures, which show 8% sales growth and 16% comparable net income growth.

How strong is PepsiCo's balance sheet and liquidity position?

Liquidity is strong: cash and short-term investments total $1.33 billion, and $1.5 billion of revolving credit facilities are unused at year-end 2000. Total debt of about $2.4 billion is well below 1999 levels, and $750 million of short-term borrowings were reclassified as long-term. Shareholders' equity rose to $7.2 billion, though net debt and the $2.3 billion guarantee of Bottling Group LLC debt are contingent exposures to monitor.

What drove growth in each business segment, and where were the weak spots?

Frito-Lay North America grew comparable net sales 7% and comparable operating profit 10%, helped by Snack Kit products and Oberto jerky. Frito-Lay International grew sales 14% and operating profit 19%, led by Mexico, the UK and Turkey, though weaker currencies in the UK and Australia reduced sales. Pepsi-Cola North America grew sales 8% mainly on pricing and Aquafina royalties, while its volume grew only 1%, with declines in Pepsi and Pepsi One. Pepsi-Cola International grew sales 3% and operating profit 37%, with Russia's volume doubling. Tropicana grew sales 6% and operating profit 30%, but lower effective pricing from higher trade spending partly offset volume gains.

PEP 10-K FY2000 Annual Report — Revenue, Net Income, EPS

01—Abstract

Summary

Summary of the 10-K filed March 15, 2001. Cited figures are marked; the original filing is the authoritative source.

PepsiCo's fiscal 2000 10-K (53-week year ended December 30, 2000) shows a business that grew comparable net sales 8% to $20.1 billion^a and comparable operating profit 12%, with comparable operating margin rising 0.5 points to 15.7%.

Growth was driven by volume gains across all segments plus higher effective net pricing at Frito-Lay and Pepsi-Cola. Reported net income rose 6% to $2.18 billion^b, and diluted EPS reached $1.48 (comparable $1.45, up 18%), helped by a 1.4% reduction in average diluted shares. The fifty-third week added an estimated $294 million to sales, $62 million to operating profit and $0.03 to EPS, so underlying growth is somewhat lower than reported figures suggest.

Note that the reported 2000 figures are not directly comparable to 1999 because the 1999 bottling deconsolidation moved Pepsi bottling operations to equity accounting. The most significant strategic development is the pending merger with The Quaker Oats Company, which would be accounted for as a pooling of interests. Quaker holders would receive 2.3 PepsiCo shares per Quaker share, capped at $105^c per share, with roughly 315 million new PepsiCo shares issued (about 18% of post-merger shares outstanding).

Expected transaction costs are about $100 million^d, and the deal is targeted to close in the first half of 2001, subject to shareholder and regulatory approvals; the FTC has requested additional information. The Board rescinded the share repurchase program in December 2000, so buybacks that had reached $1.43 billion in 2000 are paused.

Balance sheet and liquidity remain solid: cash plus short-term investments total $1.33 billion, operating cash flow was $3.9 billion, and capital spending was $1.07 billion. Total debt, including short-term borrowings and long-term debt, is about $2.4 billion, down substantially from prior years.

02—Key points

Key Highlights

Comparable net sales rose 8% to $20.1 billion in 2000, with volume contributing 6 points and effective net pricing 3 points, partly offset by 1 point of unfavorable currency impact.
Comparable operating profit grew 12% to $3.16 billion, lifting comparable operating margin to 15.7% from 15.2%; reported operating profit was $3.23 billion (15.8% margin).
Diluted EPS was $1.48 reported (up 8%) and $1.45 comparable (up 18%); the 53rd week contributed about $0.03 per share.
Pending Quaker Oats merger: 2.3 PepsiCo shares per Quaker share (capped at $105), about 315 million new shares, pooling-of-interests accounting, expected close in 1H 2001, with roughly $100 million of transaction costs.
Share repurchases of $1.43 billion in 2000 were rescinded by the Board on December 3, 2000, following the Quaker agreement.
Frito-Lay North America drove profit with comparable operating profit up 10% to $1.81 billion; Tropicana comparable operating profit grew 30%, and Pepsi-Cola North America comparable operating profit grew 9%.
Strong cash generation: operating cash flow of $3.9 billion funded $1.07 billion of capex, $796 million of dividends and $1.43 billion of buybacks, while total assets reached $18.3 billion and shareholders' equity $7.2 billion.

03—Questions

Frequently Asked Questions

How much of the 2000 earnings growth was due to the 53rd week, and what is the underlying growth rate?
The extra week added an estimated $294 million to net sales, $62 million to operating profit and $44 million (about $0.03 per share) to net income. Excluding it, comparable net income rose 16% and comparable EPS rose 18% to $1.45, so the underlying growth is roughly in line with the reported figures but modestly smaller in absolute terms.
What are the key terms and risks of the Quaker Oats merger for PepsiCo shareholders?
PepsiCo would issue about 315 million shares, roughly 18% of post-merger shares outstanding, which dilutes existing holders' ownership. The exchange ratio is fixed at 2.3 shares per Quaker share up to a $105 maximum value; Quaker may terminate if the value falls below $92. Risks include shareholder and regulatory approvals (the FTC has requested more information), integration costs beyond the roughly $100 million in transaction expenses, and the pooling-of-interests structure, which required PepsiCo to sell 15 to 20 million repurchased shares before closing.
Why is the 2000 reported profit growth different from 1999 and how should investors read the comparisons?
The 1999 results include a $1.0 billion pre-tax gain (about $270 million after tax) from bottling transactions, and 1999 bottling operations were deconsolidated into equity affiliates such as PBG and PepsiAmericas. Reported net sales were flat year over year ($20.4 billion vs. $20.4 billion) because of the deconsolidation, so investors should focus on the comparable measures, which show 8% sales growth and 16% comparable net income growth.
How strong is PepsiCo's balance sheet and liquidity position?
Liquidity is strong: cash and short-term investments total $1.33 billion, and $1.5 billion of revolving credit facilities are unused at year-end 2000. Total debt of about $2.4 billion is well below 1999 levels, and $750 million of short-term borrowings were reclassified as long-term. Shareholders' equity rose to $7.2 billion, though net debt and the $2.3 billion guarantee of Bottling Group LLC debt are contingent exposures to monitor.
What drove growth in each business segment, and where were the weak spots?
Frito-Lay North America grew comparable net sales 7% and comparable operating profit 10%, helped by Snack Kit products and Oberto jerky. Frito-Lay International grew sales 14% and operating profit 19%, led by Mexico, the UK and Turkey, though weaker currencies in the UK and Australia reduced sales. Pepsi-Cola North America grew sales 8% mainly on pricing and Aquafina royalties, while its volume grew only 1%, with declines in Pepsi and Pepsi One. Pepsi-Cola International grew sales 3% and operating profit 37%, with Russia's volume doubling. Tropicana grew sales 6% and operating profit 30%, but lower effective pricing from higher trade spending partly offset volume gains.

04—Continue

← View all 10-K filings