10-QPeriod: Q1 FY2010

PEPSICO INC Quarterly Report for Q1 Ended Mar 20, 2010

Filed April 23, 2010For Securities:PEP

Summary

PepsiCo Inc. reported solid financial results for the 12 weeks ended March 20, 2010, demonstrating resilience despite significant strategic activities. The company's net revenue saw a substantial increase of 13% to $9.368 billion, largely driven by the transformative acquisitions of The Pepsi Bottling Group (PBG) and PepsiAmericas (PAS) which closed in late February 2010. While operating profit decreased by 47% to $840 million, this was heavily influenced by significant one-time items related to the PBG/PAS merger and integration, inventory fair value adjustments, and the Venezuela currency devaluation. Excluding these items, the company showed underlying operational strength. Net income attributable to PepsiCo increased by a healthy 26% to $1.430 billion, with diluted earnings per share rising 23% to $0.89. This performance was significantly boosted by a large gain on previously held equity interests in PBG and PAS, partially offset by merger and integration costs. The company's balance sheet reflects the substantial impact of the acquisitions, with total assets growing significantly. PepsiCo also continued its commitment to shareholder returns, increasing its dividend and authorizing substantial share repurchases.

Financial Highlights

52 data points
Beta

Revenue

$9.37B

52.4% Gross Margin

Net Income

$1.43B

15.3% Net Margin

EPS (Diluted)

$0.89

Total Assets

$64.14B

Cash & Equivalents

$3.95B

Free Cash Flow

$241.00M

Financial Statements
Beta
Revenue$9.37B
Cost of Revenue$4.46B
Gross Profit$4.91B
SG&A Expenses$4.05B
Operating Income$840.00M
Interest Expense$154.00M
Net Income$1.43B
EPS (Basic)$0.90
EPS (Diluted)$0.89
Shares Outstanding (Basic)1.58B
Shares Outstanding (Diluted)1.61B

Key Highlights

  • 1Net revenue increased 13% to $9.368 billion, primarily due to the acquisitions of PBG and PAS.
  • 2Net income attributable to PepsiCo rose 26% to $1.430 billion, significantly benefiting from a $958 million gain on previously held equity interests in PBG and PAS.
  • 3Diluted earnings per share increased 23% to $0.89.
  • 4The company incurred significant PBG/PAS merger and integration charges ($312 million), inventory fair value adjustments ($281 million), and a Venezuela currency devaluation charge ($120 million), which impacted reported operating profit.
  • 5Total assets significantly increased to $64.144 billion as of March 20, 2010, reflecting the consolidation of PBG and PAS.
  • 6Cash used for investing activities was substantial at $4.011 billion, largely due to the PBG and PAS acquisitions and the Dr Pepper Snapple Group agreement.
  • 7The company announced a 7% increase in its annual dividend and authorized significant share repurchases.

Frequently Asked Questions

The primary driver of the 13% increase in net revenue to $9.368 billion was the completion of the acquisitions of The Pepsi Bottling Group (PBG) and PepsiAmericas (PAS) on February 26, 2010. These acquisitions significantly expanded PepsiCo's operations and were consolidated into the financial statements from the acquisition date.

Operating profit decreased by 47% to $840 million primarily due to significant one-time charges and adjustments related to the PBG/PAS acquisitions. These included merger and integration costs ($312 million), inventory fair value adjustments ($281 million), and a charge related to the Venezuela currency devaluation ($120 million). These items, detailed under 'Items Affecting Comparability', heavily impacted the reported operating profit.

The acquisitions of PBG and PAS led to a substantial increase in PepsiCo's total assets, which grew from $39.848 billion at the end of the previous fiscal year to $64.144 billion as of March 20, 2010. This increase reflects the consolidation of PBG and PAS's assets and liabilities, including significant additions to goodwill and intangible assets.

PepsiCo recognized a significant gain of $958 million on its previously held equity interests in PBG and PAS upon their full acquisition. This gain arose from remeasuring these prior investments to their fair value at the acquisition date and significantly boosted the net income attributable to PepsiCo for the quarter.