10-QPeriod: Q3 FY2006

PEPSICO INC Quarterly Report for Q3 Ended Sep 9, 2006

Filed October 12, 2006For Securities:PEP

Summary

PepsiCo, Inc. reported strong financial performance for the 36 weeks ended September 9, 2006, with net revenue increasing by 10% to $24.75 billion and operating profit growing by 10% to $4.93 billion compared to the same period in the prior year. This growth was driven by a combination of increased volume (5% for beverages and over 6% for snacks) and positive effective net pricing across all divisions. The company also benefited from favorable foreign exchange rates and strategic acquisitions. Net income saw a substantial increase of 30% to $3.86 billion, largely due to the absence of a significant tax charge related to international earnings repatriation in the prior year, coupled with solid operating profit growth, a lower effective tax rate, and increased gains from the sale of Pepsi Bottling Group (PBG) stock. The company continued its commitment to shareholder returns, repurchasing $2.2 billion in common stock and paying $1.4 billion in dividends during the period. Management remains focused on returning operating cash flow to shareholders while strategically investing in capital expenditures.

Key Highlights

  • 1Net revenue increased by 10% to $24.75 billion for the first 36 weeks of 2006, driven by a 5% increase in beverage volume and over 6% increase in snack volume.
  • 2Operating profit rose by 10% to $4.93 billion, demonstrating strong operational performance despite higher commodity costs.
  • 3Net income surged by 30% to $3.86 billion, significantly boosted by the absence of a prior year tax charge related to international earnings repatriation.
  • 4The company realized substantial gains from the sale of Pepsi Bottling Group (PBG) stock, contributing positively to bottling equity income.
  • 5Effective net pricing across all divisions contributed positively to revenue growth, alongside benefits from favorable foreign exchange rates and strategic acquisitions.
  • 6Shareholders received substantial returns through $2.2 billion in common stock repurchases and $1.4 billion in dividend payments during the 36-week period.
  • 7Capital expenditures increased to $1.13 billion for the 36-week period, reflecting investments in key areas like Gatorade and the ongoing Business Process Transformation (BPT) initiative.

Frequently Asked Questions

Revenue growth was driven by a combination of factors including increased volume in both beverage (nearly 8% for the 36 weeks) and snack categories (over 6% for the 36 weeks), positive effective net pricing across all divisions, contributions from acquisitions, and favorable foreign exchange movements.

Net income increased by 30% to $3.86 billion for the 36 weeks ended September 9, 2006. A major reason for this substantial increase was the absence of a significant $468 million tax charge recorded in the third quarter of 2005 related to the repatriation of international earnings under the American Jobs Creation Act (AJCA). The current year's tax rate also benefited from changes in concentrate sourcing and the resolution of state income tax audits.

PepsiCo is actively returning capital to shareholders through share repurchases and dividend payments. During the 36 weeks ended September 9, 2006, the company repurchased approximately $2.2 billion of its common stock and paid $1.4 billion in dividends. A new $8.5 billion repurchase program was authorized in May 2006.

Capital spending for the 36-week period was $1.13 billion, an increase over the prior year, reflecting investments in the North American Gatorade business, PepsiCo International, and the Business Process Transformation (BPT) initiative. The company anticipates net capital spending of approximately $2.2 billion for the full year 2006.