10-QPeriod: Q1 FY2006

PEPSICO INC Quarterly Report for Q1 Ended Mar 25, 2006

Filed April 26, 2006For Securities:PEP

Summary

PepsiCo Inc. reported strong first-quarter results for 2006, with net revenue increasing by 9% to $7.2 billion and net income rising by 12% to $1.019 billion compared to the same period in 2005. This growth was driven by a combination of increased volume across its beverage and snack divisions, along with effective net pricing strategies. The company also saw a significant improvement in operating profit, up 8% year-over-year, demonstrating efficient cost management and leverage from revenue growth. Key drivers included robust performance in its international segment and solid gains in North America, particularly in non-carbonated beverages and convenience foods. Financial condition remained solid, with total assets of $30.99 billion. While the company utilized significant cash for share repurchases and dividend payments, its operating cash flow, adjusted for capital expenditures, stood at a negative $37 million for the quarter, impacted by a significant tax payment related to international cash repatriation. However, the company anticipates returning most of its projected management operating cash flow to shareholders through dividends and buybacks for the full year. Overall, PepsiCo demonstrated positive momentum in revenue and profit, supported by strong brand performance and strategic initiatives.

Key Highlights

  • 1Net revenue for the 12 weeks ended March 25, 2006, increased by 9% to $7.205 billion compared to $6.585 billion in the prior year period.
  • 2Net income grew by 12% to $1.019 billion, or $0.60 per diluted share, up from $912 million, or $0.53 per diluted share, in the same period last year.
  • 3Total operating profit increased by 8% to $1.348 billion, driven by revenue growth and operational efficiencies.
  • 4Volume growth was a significant contributor, with worldwide beverages up 9% and worldwide snacks up 4% for the quarter.
  • 5PepsiCo International showed particularly strong performance with net revenue up 12% and operating profit up 21%.
  • 6The company repurchased $660 million of common stock and paid $432 million in dividends during the quarter, underscoring its commitment to returning capital to shareholders.
  • 7Management operating cash flow for the quarter was negative $37 million, significantly impacted by a $420 million tax payment related to international cash repatriation in 2005.

Frequently Asked Questions

The primary driver of PepsiCo's 9% net revenue growth was a combination of increased volume across its beverage and snack divisions, which contributed approximately 6 percentage points, and positive effective net pricing, contributing another 3 percentage points. Acquisitions also added nearly 1 percentage point to revenue growth.

Effective January 1, 2006, PepsiCo adopted SFAS 123R, 'Share-Based Payment,' under the modified prospective method. Since the company already accounted for stock-based compensation under SFAS 123's fair value provisions, the adoption did not significantly impact its financial position or results of operations. A key change is that excess tax benefits from share-based payments are now reported as a financing cash inflow, whereas previously they were reported as an operating cash inflow.

While total operating profit increased by 8%, the operating profit margin slightly decreased by 0.2 percentage points to 18.7%. This was due to increased raw material and energy costs, along with higher selling, general, and administrative expenses, which offset some of the benefits from revenue growth and improved division operating profit margins.

The negative management operating cash flow of $37 million for the first quarter of 2006 was significantly impacted by a $420 million tax payment related to the repatriation of international cash in 2005 under the American Jobs Creation Act. Despite this short-term impact, the company expects to return most of its projected management operating cash flow to shareholders through dividends and share repurchases for the full year.