10-QPeriod: Q2 FY2018

PEPSICO INC Quarterly Report for Q2 Ended Jun 16, 2018

Filed July 10, 2018For Securities:PEP

Summary

PepsiCo Inc. reported financial results for the 12 and 24 weeks ended June 16, 2018, reflecting steady revenue growth and operational adjustments. For the 24-week period, net revenue increased by 3% to $28.7 billion, while operating profit saw a modest 1% rise to $4.8 billion. The company's diluted earnings per share (EPS) for the 24-week period decreased by 7% to $2.21, impacted by a significant provisional net tax expense related to the Tax Cuts and Jobs Act (TCJ Act) and other items affecting comparability. Key operational highlights include volume growth across most divisions, particularly in snacks and beverages outside North America, alongside effective net pricing strategies. However, rising commodity costs presented a headwind, impacting operating profit growth. The company also completed significant pension contributions and continued its restructuring efforts under the 2014 Productivity Plan, which are expected to yield future efficiencies. PepsiCo maintained a strong liquidity position, with substantial cash reserves and access to credit facilities, and continued to return capital to shareholders through dividends and share repurchases.

Financial Statements
Beta

Key Highlights

  • 1Net revenue for the 24 weeks ended June 16, 2018, increased by 3% to $28.7 billion, driven by volume growth and effective net pricing.
  • 2Operating profit for the 24-week period grew by 1% to $4.8 billion, though impacted by higher commodity costs and other operational expenses.
  • 3Diluted EPS for the 24-week period decreased by 7% to $2.21, largely due to a provisional net tax expense related to the Tax Cuts and Jobs Act and other items affecting comparability.
  • 4The company made significant discretionary contributions to its pension plans ($1.4 billion to U.S. Plan A), impacting operating cash flow but aligning with long-term financial management.
  • 5Restructuring charges of $44 million were incurred in the 24-week period as part of the ongoing 2014 Productivity Plan, aimed at enhancing efficiency.
  • 6PepsiCo continued its commitment to returning capital to shareholders, with $2.3 billion in dividends declared and $0.98 billion in share repurchases during the 24-week period.
  • 7Foreign exchange had a positive impact, contributing 1 percentage point to net revenue growth for the 24-week period.

Frequently Asked Questions

The decrease in Net Income Attributable to PepsiCo for the 24 weeks ended June 16, 2018, was primarily driven by a provisional net tax expense related to the Tax Cuts and Jobs Act (TCJ Act), which amounted to $778 million, and other items affecting comparability. These factors significantly impacted the effective tax rate and overall profitability.

Higher commodity costs were a significant headwind, reducing operating profit growth by 4 percentage points for the 24-week period. These costs were experienced across all divisions and notably impacted segments like North America Beverages and Latin America.

PepsiCo announced a new share repurchase program in February 2018 for up to $15 billion, which commenced in July 2018. The company also announced a 15.2% increase in its annualized dividend to $3.71 per share. In the 24 weeks ended June 16, 2018, PepsiCo returned approximately $3.3 billion to shareholders through dividends and share repurchases.

For the 24 weeks ended June 16, 2018, international operations generated 41% of consolidated net revenue. Favorable foreign exchange contributed 1 percentage point to net revenue growth, driven by appreciation in the euro, Mexican peso, Pound sterling, and Canadian dollar. However, the company remains exposed to foreign exchange risks and volatile economic/political conditions in various international markets.