10-QPeriod: Q2 FY2008

PEPSICO INC Quarterly Report for Q2 Ended Jun 14, 2008

Filed July 23, 2008For Securities:PEP

Summary

PepsiCo, Inc. reported solid financial results for the first half of 2008, showcasing robust revenue and profit growth. For the 24 weeks ended June 14, 2008, net revenue increased by 14% to $19.3 billion, and operating profit grew by 11% to $3.7 billion. This growth was driven by a combination of volume increases across most divisions, effective net pricing strategies, and favorable foreign currency translation, which contributed significantly to international segment performance. While the company demonstrated strong operational performance, investors should note increased net interest expense due to higher average debt balances and strategic share repurchases totaling $2.9 billion in the first half of the year, alongside a $1.2 billion dividend payout. The company also announced an increase in its quarterly dividend and plans to repurchase at least $5.3 billion of its shares in 2008, underscoring its commitment to returning capital to shareholders. Management is actively hedging against commodity cost fluctuations, mitigating some of the impact of rising raw material and energy costs.

Key Highlights

  • 1Net revenue increased by 14% to $19.3 billion for the 24 weeks ended June 14, 2008, compared to $16.96 billion in the prior year.
  • 2Operating profit rose by 11% to $3.74 billion for the 24 weeks ended June 14, 2008, compared to $3.38 billion in the prior year.
  • 3Diluted earnings per share increased by 10% to $1.76 for the 24 weeks ended June 14, 2008, compared to $1.59 in the prior year.
  • 4Strong volume growth was observed across many divisions, particularly in Latin America Foods (LAF) and Middle East, Africa & Asia (MEAA), with overall servings increasing by 4.5% for the 24-week period.
  • 5The company returned significant capital to shareholders through $2.9 billion in share repurchases and $1.2 billion in dividend payments during the first 24 weeks of 2008.
  • 6Favorable foreign currency movements provided a notable boost to international segment revenues and operating profits.
  • 7The company actively managed commodity price risks through additional derivative contracts to hedge against fluctuations in raw material and energy costs.

Frequently Asked Questions

For the 24 weeks ended June 14, 2008, PepsiCo reported a 14% increase in net revenue to $19.3 billion and an 11% increase in operating profit to $3.74 billion. This performance reflects broad-based growth driven by volume, pricing, and favorable foreign exchange rates.

PepsiCo is utilizing hedging strategies, including entering into additional derivative contracts, to mitigate the impact of price fluctuations in raw material and energy costs. They are also implementing productivity initiatives to offset these increases.

PepsiCo is actively returning capital through substantial share repurchase programs and dividend payments. In the first 24 weeks of 2008, they repurchased $2.9 billion of common stock and paid $1.2 billion in dividends. The company also announced a 13% dividend increase and intends to repurchase at least $5.3 billion of its shares in 2008.

Yes, the Latin America Foods (LAF) and Middle East, Africa & Asia (MEAA) divisions showed particularly strong revenue growth, driven by acquisitions, volume increases, and favorable currency. PepsiCo Americas Beverages (PAB) experienced volume declines in North America, though this was partially offset by growth in Latin America and effective net pricing.