10-QPeriod: Q2 FY2012

PEPSICO INC Quarterly Report for Q2 Ended Jun 16, 2012

Filed July 25, 2012For Securities:PEP

Summary

PepsiCo, Inc. reported its financial results for the 12 and 24 weeks ended June 16, 2012. For the 12-week period, net revenue decreased by 2% to $16.5 billion, and operating profit decreased by 14% to $2.4 billion. For the 24-week period, net revenue remained flat at $28.9 billion, while operating profit declined by 9% to $4.1 billion. These results were impacted by various factors including higher commodity costs, unfavorable foreign currency movements, and significant restructuring and other charges. Despite the reported declines, the company highlighted efforts to improve cost-competitiveness through its multi-year Productivity Plan. The company also continued to focus on returning capital to shareholders, with significant dividend payments and share repurchases. While net revenue saw some pressure, particularly in the Americas Beverages segment due to divestitures and volume declines, the Europe and Latin America Foods segments showed positive organic net revenue growth. Investors should note the significant impact of "items affecting comparability," which include mark-to-market net losses on commodity hedges, restructuring and impairment charges, merger and integration charges, and restructuring and other charges related to the Tingyi transaction. These items significantly affected reported profitability, making it important to analyze the underlying operational performance.

Financial Highlights

50 data points
Beta

Revenue

$16.46B

51.9% Gross Margin

Net Income

$1.49B

9.0% Net Margin

EPS (Diluted)

$0.94

Total Assets

$72.39B

Cash & Equivalents

$3.86B

Free Cash Flow

$1.94B

Financial Statements
Beta
Revenue$16.46B
Cost of Revenue$7.92B
Gross Profit$8.54B
SG&A Expenses$6.14B
Operating Income$2.38B
Interest Expense$209.00M
Net Income$1.49B
EPS (Basic)$0.95
EPS (Diluted)$0.94
Shares Outstanding (Basic)1.56B
Shares Outstanding (Diluted)1.58B

Key Highlights

  • 1Net revenue for the 12 weeks ended June 16, 2012, was $16.46 billion, a 2% decrease compared to $16.83 billion in the prior year.
  • 2Net income attributable to PepsiCo for the 12 weeks ended June 16, 2012, was $1.49 billion, down from $1.89 billion in the prior year.
  • 3Diluted earnings per share for the 12 weeks ended June 16, 2012, were $0.94, compared to $1.17 in the prior year.
  • 4The company reported significant restructuring and impairment charges of $110 million for the 24 weeks ended June 16, 2012, as part of its multi-year Productivity Plan.
  • 5PepsiCo Americas Beverages (PAB) segment net revenue decreased by 5% in the 12-week period, impacted by divestitures and volume declines.
  • 6Europe segment showed a 1% increase in net revenue for the 24-week period, with a 7% constant currency growth, driven by effective net pricing and the WBD acquisition.
  • 7Cash dividends declared per common share increased to $0.5375 for the 12 weeks ended June 16, 2012, from $0.515 in the prior year.

Frequently Asked Questions

The decrease in net income and earnings per share was primarily due to higher commodity costs, unfavorable foreign currency impacts, and significant charges related to the company's Productivity Plan and other restructuring initiatives. These "items affecting comparability" substantially impacted the reported financial results.

Performance varied by segment. PepsiCo Americas Foods (PAF) saw mixed results, with Frito-Lay North America (FLNA) showing modest net revenue growth but lower operating profit, while Quaker Foods North America (QFNA) experienced revenue and profit declines. PepsiCo Americas Beverages (PAB) faced headwinds with declining net revenue and operating profit. Europe and Asia, Middle East & Africa (AMEA) showed resilience and growth in certain areas, particularly in constant currency, but were impacted by currency and specific strategic transactions like the Tingyi deal.

The Productivity Plan is a multi-year initiative aimed at enhancing cost-competitiveness, funding innovation, and providing a financial cushion against economic uncertainty. It involves actions across the business, including process improvements, facility consolidation, and organizational restructuring. For the 24 weeks ended June 16, 2012, the company incurred $110 million in restructuring and impairment charges related to this plan, with further charges expected through 2015.

PepsiCo manages these risks through productivity initiatives, global purchasing programs, and hedging strategies using derivative instruments. The company uses derivatives to hedge against price fluctuations in commodities, foreign exchange rates, and interest rates. While these strategies aim to mitigate volatility, the filing notes that unfavorable foreign currency movements had a negative impact on revenue and profit growth in certain regions.