10-QPeriod: Q3 FY2018

PEPSICO INC Quarterly Report for Q3 Ended Sep 8, 2018

Filed October 2, 2018For Securities:PEP

Summary

PepsiCo Inc. reported solid financial results for the 12 and 36 weeks ended September 8, 2018. Net revenue saw a modest increase of 1.5% for the quarter and 3% year-to-date, reaching $16.5 billion and $45.1 billion, respectively. Diluted earnings per share (EPS) showed more robust growth, up 18% to $1.75 for the quarter and 3% to $3.97 year-to-date. This EPS growth was significantly influenced by a substantial tax benefit from resolved international tax audits and the impact of the Tax Cuts and Jobs Act (TCJ Act), which lowered the corporate tax rate. Operationally, the company demonstrated resilience with positive volume growth across most divisions, particularly in Frito-Lay North America and the international segments. However, operating profit experienced a slight decline of 3% for the quarter, impacted by higher commodity costs, increased advertising and marketing expenses, and unfavorable foreign exchange, despite revenue growth and cost-reduction efforts. The company also highlighted its ongoing productivity initiatives and commitment to returning capital to shareholders through dividends and share repurchases.

Financial Highlights

51 data points
Beta

Revenue

$16.48B

54.3% Gross Margin

Net Income

$2.50B

15.2% Net Margin

EPS (Diluted)

$1.75

Total Assets

$73.63B

Cash & Equivalents

$11.99B

Free Cash Flow

$3.65B

Financial Statements
Beta
Revenue$16.48B
Cost of Revenue$7.53B
Gross Profit$8.96B
SG&A Expenses$6.11B
Operating Income$2.84B
Interest Expense$302.00M
Net Income$2.50B
EPS (Basic)$1.77
EPS (Diluted)$1.75
Shares Outstanding (Basic)1.41B
Shares Outstanding (Diluted)1.42B

Key Highlights

  • 1Net revenue increased by 1.5% to $16.5 billion for the 12 weeks ended September 8, 2018, and by 3% to $45.1 billion for the 36 weeks ended September 8, 2018.
  • 2Diluted EPS rose by 18% to $1.75 for the 12-week period and by 3% to $3.97 for the 36-week period, boosted by tax benefits and the TCJ Act.
  • 3Operating profit saw a slight decrease of 3% for the 12-week period, primarily due to increased commodity costs, higher advertising/marketing expenses, and unfavorable foreign exchange.
  • 4Frito-Lay North America (FLNA) showed strong performance with 3% net revenue growth and 3.5% operating profit growth for the quarter.
  • 5The company made significant discretionary contributions ($1.4 billion) to its pension and retiree medical plans during the 36-week period.
  • 6PepsiCo returned approximately $5.1 billion to shareholders through dividends and share repurchases in the 36-week period.
  • 7Significant tax benefits were recognized due to the conclusion of international tax audits and the impact of the Tax Cuts and Jobs Act.

Frequently Asked Questions

The significant increase in Net Income Attributable to PepsiCo for the 12 weeks ended September 8, 2018, was primarily driven by a substantial non-cash tax benefit of $364 million resulting from the conclusion of certain international tax audits and the resolution of IRS matters for taxable years 2012 and 2013. Additionally, the lower U.S. corporate income tax rate due to the Tax Cuts and Jobs Act also contributed to improved net income.

Unfavorable foreign exchange rates negatively impacted net revenue growth by 2 percentage points in the 12 weeks ended September 8, 2018, primarily due to declines in the Turkish lira, Mexican peso, Brazilian real, and Russian ruble. For the 36-week period, foreign exchange had a net nominal impact on net revenue growth due to opposing currency movements, but it did negatively affect operating profit in several segments.

Items Affecting Comparability are non-GAAP adjustments that management uses to provide a clearer view of the company's underlying operational performance by excluding items that may be significant or distort period-over-period comparisons. These include impacts from mark-to-market gains/losses on derivatives, restructuring charges, and tax-related adjustments like the provisional net tax expense from the TCJ Act or tax benefits from audit resolutions. Investors should review both GAAP and non-GAAP figures to get a comprehensive understanding of performance.

PepsiCo is committed to returning capital to shareholders. For the 36 weeks ended September 8, 2018, the company returned approximately $5.1 billion through dividends and share repurchases. They have announced a new $15 billion share repurchase program and increased their annualized dividend, indicating a continued focus on shareholder returns.