10-QPeriod: Q3 FY2007

PEPSICO INC Quarterly Report for Q3 Ended Sep 8, 2007

Filed October 11, 2007For Securities:PEP

Summary

PepsiCo Inc. reported strong financial results for the 36 weeks ended September 8, 2007, with net revenue increasing by 10% to $27.1 billion and net income growing 15% to $4.4 billion compared to the same period in the prior year. Diluted earnings per share saw a 17% increase, reaching $2.64. This performance was driven by broad-based strength across its divisions, particularly PepsiCo International, which experienced significant revenue and operating profit growth. The company demonstrated robust operating cash flow of $5.2 billion, an increase from $4.3 billion in the prior year, reflecting the strong underlying business performance. PepsiCo also continued to return capital to shareholders through substantial share repurchases ($3.1 billion) and dividend payments ($1.6 billion) during the period. The company's liquidity remains strong with an unused $2 billion revolving credit facility. Management expressed confidence in future performance, with capital spending plans aligned with historical percentages of net revenue.

Key Highlights

  • 1Net revenue for the 36 weeks ended September 8, 2007, increased by 10% to $27.1 billion, compared to $24.6 billion in the prior year.
  • 2Net income for the 36-week period rose 15% to $4.4 billion, up from $3.8 billion in the prior year.
  • 3Diluted earnings per share (EPS) increased by 17% to $2.64 for the 36 weeks, compared to $2.26 in the prior year.
  • 4Operating cash flow for the 36 weeks was strong at $5.2 billion, a significant increase from $4.3 billion in the prior year.
  • 5PepsiCo International showed particularly strong growth, with net revenue up 20% and operating profit up 21% for the 36-week period.
  • 6The company returned $4.7 billion to shareholders through dividends and share repurchases during the 36-week period.
  • 7A favorable tax rate change, including $115 million in tax benefits from foreign tax matter resolutions, positively impacted net income.

Frequently Asked Questions

Revenue growth was driven by a combination of factors including positive effective net pricing across all divisions, volume growth (especially in snacks and international markets), contributions from acquisitions, and favorable foreign currency exchange rates.

While revenue grew, operating profit growth was partially offset by higher raw material costs. However, the company benefited from leverage from revenue growth, manufacturing and distribution efficiencies in some segments, and a favorable change in its effective tax rate, which included significant one-time tax benefits.

PepsiCo demonstrated a strong commitment to returning capital to shareholders through substantial share repurchases ($3.1 billion) and dividend payments ($1.6 billion) during the 36-week period. The company also noted an increase in its targeted dividend payout rate and a significant authorization for future stock repurchases.

PepsiCo adopted FIN 48 concerning uncertainty in tax positions at the beginning of 2007. The company is also evaluating the impact of newly issued FASB standards SFAS 157 (Fair Value Measurements) and SFAS 159 (The Fair Value Option for Financial Assets and Financial Liabilities), which are effective in fiscal year 2008.