10-QPeriod: Q3 FY2003

PEPSICO INC Quarterly Report for Q3 Ended Sep 30, 2003

Filed October 14, 2003For Securities:PEP

Summary

PepsiCo, Inc. reported strong financial performance for the 36-week period ended September 6, 2003. Net revenue increased by 7% to $18.9 billion, and net income grew by 14% to $2.86 billion, compared to the same period in the prior year. This growth was driven by solid volume gains across all divisions, particularly in beverages and snacks, coupled with effective net pricing and a lower effective tax rate. The company's strategic initiatives, including productivity gains and a focus on 'better-for-you' products, are contributing positively to profitability. For the 12-week period, net revenue rose 8% to $6.83 billion, and net income increased by 13% to $1.08 billion. The company also demonstrated strong operating cash flow generation, with management operating cash flow reaching $2.68 billion for the 36-week period. Significant financial activities included substantial share repurchases and dividend payments, reflecting a commitment to returning capital to shareholders. Merger-related costs, primarily from the Quaker acquisition, continued to decrease, positively impacting profitability.

Key Highlights

  • 1Net revenue increased 7% to $18.9 billion for the 36 weeks ended September 6, 2003, compared to the prior year.
  • 2Net income rose 14% to $2.86 billion for the 36-week period, demonstrating strong profitability.
  • 3Diluted net income per common share increased by 17% to $1.64 for the 36-week period.
  • 4Volume grew across all divisions, with worldwide beverages and snacks each increasing by 5% for the 36-week period.
  • 5Total operating profit margin improved by 1.1 percentage points to 21.0% for the 36-week period.
  • 6Management operating cash flow for the 36-week period was $2.68 billion, an increase of $72 million year-over-year.
  • 7PepsiCo returned significant capital to shareholders through $1.0 billion in common share repurchases and $795 million in dividend payments during the 36-week period.

Frequently Asked Questions

PepsiCo's revenue growth was primarily driven by broad-based volume gains across all divisions, especially in beverages and snacks. Higher effective net pricing, resulting from price increases and favorable product mix, also contributed significantly. International operations benefited from favorable currency movements for certain periods.

The integration of Quaker continued to incur merger-related costs. For the 36 weeks ended September 6, 2003, these costs were $31 million, a significant decrease from $134 million in the prior year. The reduction in these costs had a positive impact on operating profit and net income.

PepsiCo actively returns capital to shareholders through share repurchase programs and dividend payments. For the 36 weeks ended September 6, 2003, the company repurchased approximately $1 billion of common stock and paid $795 million in dividends. They anticipate spending an additional $500 million to $1 billion on buybacks for the remainder of 2003.

Management highlighted risks including foreign currency fluctuations (particularly the Mexican peso), weak macroeconomic conditions in Latin America, increasing commodity costs, and retailer consolidation. The outlook suggests benefits from implemented price increases and 'better-for-you' product growth, with ongoing productivity initiatives expected to support operating margins, although commodity costs are expected to remain a headwind.