10-QPeriod: Q2 FY2005

PEPSICO INC Quarterly Report for Q2 Ended Jun 11, 2005

Filed July 14, 2005For Securities:PEP

Summary

PepsiCo, Inc. (PEP) reported strong financial performance for the 24 weeks ended June 11, 2005. Net revenue increased by 8% to $14.28 billion compared to the prior year period, driven by a combination of favorable pricing, volume growth, and positive foreign currency movements. Net income saw a significant increase of 13% to $2.11 billion, resulting in a diluted EPS of $1.23, up from $1.07 in the comparable period last year. The company's operational segments demonstrated robust growth, with notable strength in PepsiCo International and Quaker Foods North America. Frito-Lay North America also showed solid performance, while PepsiCo Beverages North America faced slight volume declines in carbonated soft drinks but was offset by growth in non-carbonated beverages. The company's strategic initiatives and pricing actions appear to be successfully driving revenue and profitability.

Key Highlights

  • 1Net revenue for the 24 weeks ended June 11, 2005, increased by 8% to $14.28 billion, driven by effective net pricing, volume growth, and favorable foreign currency.
  • 2Net income rose by 13% to $2.11 billion for the same period, with diluted EPS growing 15% to $1.23 from $1.07.
  • 3Bottling equity income saw a substantial increase of 52% to $221 million, partly due to a $64 million pre-tax gain from the sale of Pepsi Bottling Group (PBG) stock.
  • 4Frito-Lay North America reported a 6% increase in net revenue and operating profit, supported by volume growth and pricing actions in salty snacks.
  • 5PepsiCo International showed strong growth with net revenue up 14% and operating profit up 21%, driven by broad-based volume increases across snacks and beverages globally.
  • 6Quaker Foods North America delivered a 13% increase in net revenue and a 20% increase in operating profit, fueled by innovation and distribution gains.
  • 7The company generated $2.36 billion in cash from operating activities for the 24-week period, an increase from $1.53 billion in the prior year.

Frequently Asked Questions

PepsiCo's revenue growth was driven by a combination of factors including favorable effective net pricing (contributing 4 percentage points), increased volume (contributing over 2 percentage points), and net favorable foreign currency movements (contributing over 1 percentage point) for the 24 weeks ended June 11, 2005.

The sale of PBG stock resulted in a pre-tax gain of $64 million for the 24 weeks ended June 11, 2005. This gain significantly contributed to the 52% increase in bottling equity income reported for the period.

PepsiCo plans to continue returning approximately all of its management operating cash flow to shareholders. For the full year, the company expects share repurchases to range from $2.5 billion to $3.0 billion, and dividend payments are a significant use of cash flow.

In the first quarter of 2005, PepsiCo conformed its methodology for calculating bad debt reserves and modified its revenue recognition policy for products shipped by third-party carriers. These changes had a minor impact, reducing net revenue by $40 million and operating profit by $8 million for the 24-week period. The company is also evaluating the impact of adopting SFAS 123R regarding stock-based compensation.