10-QPeriod: Q2 FY2004

PEPSICO INC Quarterly Report for Q2 Ended Jun 12, 2004

Filed July 15, 2004For Securities:PEP

Summary

PepsiCo, Inc. reported strong financial results for the 24 weeks ended June 12, 2004. Net revenue increased by 9% to $13.2 billion, and net income grew by 13% to $1.86 billion, or $1.07 per diluted share. This growth was driven by robust volume increases across its divisions, particularly in beverages and snacks, supported by favorable foreign currency movements and effective pricing strategies. The company demonstrated solid operating profit growth of 10% year-over-year, with significant improvements in divisional operating profit margins. The company's liquidity remained strong, with $1.5 billion in cash provided by operating activities for the 24-week period. PepsiCo continued its commitment to shareholder returns through substantial share repurchases, totaling $1.7 billion in the quarter and $6.148 billion authorized under its new $7 billion program. The company also paid dividends, and expects to continue returning a significant portion of its operating cash flow to shareholders.

Key Highlights

  • 1Net revenue increased 9% to $13.2 billion for the 24 weeks ended June 12, 2004, compared to $12.07 billion in the prior year.
  • 2Diluted earnings per share grew 13% to $1.07 for the 24-week period, up from $0.95 in the prior year.
  • 3Total division servings increased by approximately 8% for the 24 weeks, with worldwide beverages up 9% and worldwide snacks up 6%.
  • 4PepsiCo International showed strong performance with net revenue up 16% and operating profit up 27% for the 24-week period, driven by broad-based volume increases.
  • 5PepsiCo Beverages North America reported a 10% net revenue increase and a 15% operating profit increase for the 24-week period, fueled by strong growth in non-carbonated beverages like Gatorade, Aquafina, and Propel.
  • 6The company generated $1.53 billion in net cash from operating activities for the 24-week period, despite a significant tax payment.
  • 7PepsiCo executed substantial share repurchases, spending $1.7 billion in the quarter and having $6.148 billion remaining under its new $7 billion repurchase program.

Frequently Asked Questions

Revenue growth was primarily driven by strong volume increases across its divisions, especially in beverages and snacks. Favorable foreign currency movements and effective net pricing also contributed significantly to the top-line growth.

PepsiCo is actively returning capital through share repurchases and dividend payments. The company completed a $5 billion repurchase program and authorized a new $7 billion program, repurchasing $1.7 billion in the current quarter. Dividends paid were $549 million for the 24-week period.

The comparative results were affected by prior year merger-related costs. The current period's operating profit benefited from the absence of these costs, as well as a lower effective tax rate due to increased benefits from concentrate operations and agreements with the IRS. The company also noted a significant tax payment in the second quarter of 2004 related to a 2003 IRS settlement.

Frito-Lay North America saw a 5% net revenue increase driven by pricing and volume. PepsiCo Beverages North America had a 10% revenue increase, boosted by non-carbonated drinks. PepsiCo International showed robust growth with a 16% revenue increase, supported by strong international snack and beverage volumes. Quaker Foods North America experienced flat revenue year-over-year.