10-QPeriod: Q2 FY2010

PEPSICO INC Quarterly Report for Q2 Ended Jun 12, 2010

Filed July 20, 2010For Securities:PEP

Summary

PepsiCo, Inc. (PEP) reported its Q2 2010 results, significantly impacted by the completion of its acquisitions of The Pepsi Bottling Group (PBG) and PepsiAmericas (PAS) in February 2010. These acquisitions resulted in a substantial increase in net revenue and assets, alongside a significant rise in debt. The integration of PBG and PAS is a major focus, leading to increased merger and integration costs. Despite these integration expenses and a $958 million gain from revaluing previously held equity interests in PBG and PAS, the company's financial performance shows resilience. For the 24 weeks ended June 12, 2010, net income attributable to PepsiCo increased by 9% to $3.033 billion, with diluted EPS rising 5% to $1.87. The company experienced strong volume growth in its beverage segment, largely driven by the acquired bottlers, while snack volumes showed more modest growth. The company is actively managing its expanded debt load and has reaffirmed its commitment to returning capital to shareholders through dividends and share repurchases.

Financial Highlights

52 data points
Beta

Revenue

$14.80B

54.4% Gross Margin

Net Income

$1.60B

10.8% Net Margin

EPS (Diluted)

$0.98

Total Assets

$65.07B

Cash & Equivalents

$4.53B

Free Cash Flow

$2.20B

Financial Statements
Beta
Revenue$14.80B
Cost of Revenue$6.75B
Gross Profit$8.06B
SG&A Expenses$5.56B
Operating Income$2.46B
Interest Expense$172.00M
Net Income$1.60B
EPS (Basic)$1.00
EPS (Diluted)$0.98
Shares Outstanding (Basic)1.61B
Shares Outstanding (Diluted)1.63B

Key Highlights

  • 1Completed the transformative acquisitions of The Pepsi Bottling Group (PBG) and PepsiAmericas (PAS) in February 2010 for approximately $12.6 billion, creating a more integrated supply chain.
  • 2Reported a 28% year-over-year increase in net revenue for the 24 weeks ended June 12, 2010, reaching $24.169 billion, largely due to the consolidated results of PBG and PAS.
  • 3Net income attributable to PepsiCo increased 9% to $3.033 billion for the 24-week period, with diluted EPS growing 5% to $1.87.
  • 4Recorded a significant gain of $958 million on previously held equity interests in PBG and PAS due to accounting requirements for business combinations.
  • 5Incurred substantial merger and integration charges totaling $467 million for the 24-week period related to the PBG and PAS acquisitions.
  • 6Cash provided by operating activities significantly increased to $2.442 billion for the 24-week period, up from $1.492 billion in the prior year, demonstrating strong cash generation despite acquisition-related expenses.
  • 7The company's long-term debt increased significantly due to financing for the PBG and PAS acquisitions, reaching $19.586 billion as of June 12, 2010.

Frequently Asked Questions

The primary driver is the completion of PepsiCo's acquisitions of The Pepsi Bottling Group (PBG) and PepsiAmericas (PAS) on February 26, 2010. These acquisitions have been fully consolidated into PepsiCo's financial statements, leading to a substantial increase in reported net revenue and total assets.

The acquisitions have had a mixed impact. On one hand, they contributed significant revenue and volume growth, especially in the beverage segment. However, the integration process has resulted in substantial merger and integration charges, which have weighed on operating profit. Additionally, PepsiCo recorded a one-time gain of $958 million from revaluing its previously held equity interests in PBG and PAS. For the 24-week period, net income attributable to PepsiCo increased 9% despite these integration costs.

The acquisitions were financed with a combination of cash and debt. As a result, long-term debt obligations have significantly increased, reaching $19.586 billion as of June 12, 2010. Despite the increased debt and integration expenses, net cash provided by operating activities saw a substantial increase to $2.442 billion for the 24-week period, indicating strong underlying cash generation from the combined entity. The company also utilized $4.2 billion in new debt issuance to finance the acquisitions.

Yes, several significant items affect comparability. These include a $958 million gain on previously held equity interests in PBG and PAS, $467 million in PBG/PAS merger and integration charges, inventory fair value adjustments of $357 million related to the acquisitions, and a $120 million charge due to Venezuela currency devaluation. These items are detailed in the 'Items Affecting Comparability' section of the report.