PepsiCo Reports First Quarter 2012 Results


PURCHASE, N.Y. – April 26, 2012 – PepsiCo, Inc. (NYSE: PEP) today reported net revenue growth of 4 percent and constant currency net revenue growth of 5 percent.  Reported EPS was $0.71 and core EPS was $0.69, in line with management’s expectations.  Management reaffirmed both its 2012 core constant currency EPS guidance and long-term financial targets and stated that its 2012 strategic initiatives are on track.

“Our first quarter results reflect the strength of our brands which allowed us to implement significant pricing actions,” said PepsiCo Chairman and CEO Indra Nooyi.  “Effective pricing and packaging initiatives drove 5 percent constant currency net revenue growth, allowing us to substantially offset approximately $300 million in commodity cost inflation.”

“With disciplined pricing now in place, we’re doubling our focus on the other key initiatives for 2012.  Our top priorities include stepping up our brand support through increased advertising and marketing, accelerating our innovation, and driving an aggressive productivity agenda that includes a significant restructuring program.

 

“All of these initiatives were launched in Q1 with good results, are on track, and will gain momentum as the year progresses.  We’re executing on a clear, deliberate game plan that will enhance our competitiveness while also positioning PepsiCo for sustainable growth and value creation for the long term.”


1
 Please refer to the Glossary for the definitions of constant currency and core.  Constant currency results and core results are non-GAAP financial measures that exclude certain items.  Please refer to “Reconciliation of GAAP and Non-GAAP financial information” in the attached exhibits for a description of these items.

 

Operating and Marketplace Highlights

  • Grew net revenue in three of our four business units on a reported basis and grew net revenue in all four business units on an organic basis.
  • Achieved 5.5 points of effective net pricing globally.
  • Grew both global snacks and global beverage revenue. Grew global nutrition revenue 10 percent.
  • Grew net revenue 9 percent in emerging markets.  Emerging market net revenue grew 13 percent on a constant currency basis.
  • Held LRB value share to maintain our leadership in measured channels relative to primary competitor in the U.S., the largest global beverage market.
  • Increased media spending in the U.S. by 25 percent in the first quarter.
  • Ranked No. 1 for contribution to revenue growth in U.S. convenience stores.
  • Gained Family Dollar, a leading retailer with more than 7,000 outlets in North America, as a new beverage customer.
  • Completed strategic alliance with Tingyi, China’s largest beverage manufacturer, on March 31.  China is the world’s second largest LRB market and the alliance creates a system with a relative market share of 1.6 times the next largest competitor’s position.  The alliance also creates the country’s largest LRB manufacturing network with more than 70 plants.
  • Net capital spending declined by $122 million in the quarter and was 4.7 percent of net sales over the last four quarters, an improvement of 80 basis points over the comparable prior four quarters.

 


 

Summary of First Quarter Financial Performance

  • Reported net revenue increased 4 percent and constant currency net revenue increased 5 percent, led by double-digit growth in the Europe and AMEA divisions and mid-single-digit growth in PepsiCo Americas Foods.
  • Net revenue benefited from 5.5 percentage points of effective net pricing, offset by negative foreign currency translation of 1 percentage point.  Acquisitions contributed less than 1 percentage point to net revenue growth.
  • Reported operating profit was flat and core operating profit declined 6 percent.  Operating profit performance was in line with management’s expectations and reflected the impact of division operating profit performance and higher corporate unallocated expenses.  Reported operating profit included $84 million in mark-to-market gains on commodity hedges and $35 million of restructuring, impairment and integration charges.
  • Division operating profit declined 1 percent and core division operating profit declined 2 percent.  Division operating profit performance reflected net revenue growth, which was substantially offset by approximately $300 million of commodity cost inflation.
  • Net interest expense was $175 million, an increase of $12 million, primarily driven by higher debt balances.
  • Reported effective tax rate was 26.7 percent, 10 basis points below the prior year quarter.  Core effective tax rate was 26.7 percent, 70 basis points above the prior year quarter, reflecting geographic mix shift and the favorable resolution of certain tax matters in the first quarter of 2011.
  • Reported EPS of $0.71 was even with the prior year quarter and core EPS was $0.69, a decline of 7 percent, in line with management’s expectations. Reported EPS includes a $0.04 per share benefit from mark-to-market net gains on commodity hedges, and a negative $0.01 per share impact of restructuring, impairment and integration charges.
  • A $1 billion pretax discretionary pension and retiree medical payment in the quarter contributed to an operating cash flow use of $690 million. Management operating cash flow (excluding certain items) was $79 million in the quarter.  The company returned almost $1 billion to shareholders through dividends and share repurchases in the quarter, and expects to return more than $6 billion to shareholders for the full year 2012.

 


Summary First Quarter 2012 Performance (Percent Growth)

         

         

Corea

           

    Constant Currencya 

   
 

 


Volumeb

 

Net Revenue

 

Operating Profitd

 

 

 

Net Revenue

 

OperatingProfit

 

 

Operating

Profit

PAF

2

5

(1)

6

2

1

    FLNA

(2)

4

1

 

 

4

2

 

2

    LAF

15

11

7

 

 

17

18

 

10

    QFNA

(5)

(3)

(12)

 

 

(2)

(10)

 

(10)

 

PAB

(1)

(2)

(6)

(2)

(9)

(9)

Europe

17/10c

13

29

18

4

2.5

AMEA

16/2c

12

2

12

6

7

Total Divisions

5/1c

4

(1)

5

(1)

(2)

Total PepsiCo

 

-

(6)

 

aThe above core results and core constant currency results are non-GAAP financial measures that exclude certain items affecting comparability.  For more information about our core results and core constant currency results, see “Reconciliation of GAAP and Non-GAAP Information” in the attached exhibits.  Please refer to the Glossary for definitions of “Constant Currency” and “Core”.

b Volume growth measures reflect an adjustment to the base year (2011) for divestitures that occurred in 2011, as applicable.

cSnacks/Beverage.

dThe reported operating profit performance was impacted by certain items excluded from our core results in both 2012 and 2011.  See “Reconciliation of GAAP and Non-GAAP Information” in the attached exhibits for more information about these items.  Please refer to the Glossary for the definition of “Core”.


All comparisons are on a core year-over-year basis unless otherwise noted.

 

Division Operating Summaries

 

PepsiCo Americas Foods (PAF) 

Frito-Lay North America (FLNA)

Net revenue grew 4 percent, reflecting 6 percentage points of effective net pricing.  Net revenue growth was particularly strong in the C-store, Dollar and Foodservice channels, supported by innovation and increased media spending.

 

Volume performance was negatively impacted by approximately 2 percentage points due to the extra week of results in 2011, which caused the key pre-New Year’s holiday week to be included in the fourth quarter of 2011 rather than in the first quarter of 2012.

 

Operating profit growth of 2 percent reflected the net revenue growth and productivity gains partially offset by commodity cost inflation.

 

Latin America Foods (LAF)

Net revenue grew 11 percent reflecting volume growth and 11 percentage points of effective net pricing, offset by unfavorable currency translation of 6 percentage points.

 

Volume grew 15 percent, reflecting a 10-percentage-point benefit from acquisitions and 4.5 percent organic volume growth.  Organic volume gains were led by mid-single-digit growth in Mexico.

 

Operating profit grew 10 percent as volume gains, positive effective net pricing and productivity initiatives offset commodity cost inflation, an 8-percentage-point unfavorable currency translation impact, and a net 5-percentage-point negative impact from acquisitions and divestitures.

 

Quaker Foods North America (QFNA)

Net revenue declined 3 percent and volume declined 5 percent, reflecting general category trends.  Operating profit declined 10 percent, primarily reflecting the benefit from an inventory accounting change recorded in the prior year, which contributed 7 percentage points to the decline.

 

PepsiCo Americas Beverages (PAB)

Net revenue declined 2 percent, primarily reflecting the impact of the refranchising of the division’s beverage business in Mexico, which reduced net revenue by 4 percentage points.  Net revenue performance also reflected 4 percentage points of effective net pricing.  Excluding the impact of the Mexico refranchising, net revenue increased 2 percent.

 

PAB volume declined 1 percent in the quarter, with gains in Latin America offset by a decline in North America.  Non-carbonated beverages grew 1 percent offsetting a 2 –percentage-point decline in CSDs.  The decline in North America in part reflects the impact of pricing actions taken.  Immediate consumption packaged beverage volume in North America grew high-single-digits, driven by strong retail execution. Growth in Latin America was led by double-digit gains in Mexico, high-single-digit growth in Argentina and mid-single-digit growth in Brazil.

 

Operating profit declined in the quarter, primarily as a result of increased commodity costs which offset the benefits of net pricing and savings resulting from recent restructuring activities.

 

Europe

Net revenue increased 13 percent, reflecting the benefit of the Wimm-Bill-Dann (WBD) acquisition and 5 percentage points of effective net pricing, offset partially by unfavorable foreign currency translation impact of 4 percentage points.

 

Volume increased double-digits in both snacks and beverages for the quarter including the impact of the WBD acquisition.  Snacks volume increased 3 percent on an organic basis with gains led by the United Kingdom, South Africa and Russia.  Beverage volume declined 1 percent on an organic basis, with growth in the United Kingdom and Germany offset by declines in Turkey and Russia, which were lapping double-digit gains.

 

Operating profit performance reflected the net revenue gains and favorable effective net pricing, offset by commodity cost inflation and an unfavorable foreign currency translation impact of 2 percentage points.  In addition, operating profit performance was negatively impacted by unfavorable settlements of promotional spending accruals which decreased operating profit by 15 percentage points.

 

Asia, Middle East & Africa (AMEA)

Net revenue growth of 12 percent was driven by effective net pricing and volume growth.  Snacks volume increased 16 percent and beverage volume grew 2 percent.

 

Snacks delivered its 9th consecutive quarter of double-digit volume growth in AMEA, with first quarter snacks volume growing double digits in India, Australia, Thailand and the Middle East.

 

Beverage volume growth was driven by double-digit gains in India, Saudi Arabia and the Philippines.  China beverage volume performance was impacted by the introduction of a consumer-preferred 500ml PET value package in the third quarter of 2011, which drove unit growth but adversely impacted reported volume growth.

 

Operating profit grew 7 percent, with volume growth and 7 percentage points of effective net pricing offset partially by higher commodity costs.

 

Restructuring

As previously announced, the company has committed to a multi-year productivity program.  The company incurred pre-tax non-core restructuring charges of $33 million in the first quarter of 2012 and anticipates additional charges of approximately $392 million in the balance of 2012 and another $102 million from 2013 through 2015.  These charges resulted in cash expenditures of $44 million in the first quarter of 2012, and the company anticipates additional cash expenditures of approximately $506 million in the remainder of 2012, with the balance of approximately $175 million of related cash expenditures in 2013 through 2015. 

 

2012 Guidance and Outlook

Consistent with its previous guidance for 2012, the company expects a decline in core constant currency EPS of approximately 5 percent from its fiscal 2011 core EPS of $4.40.  Based on the current forex market consensus, foreign exchange translation would have an unfavorable impact of approximately two percentage points on the company’s full year core EPS performance in 2012.  The company expects core constant currency net revenue growth of low-single-digits reflecting the impact of structural changes, principally refranchisings, which are expected to reduce core constant currency net revenue growth by approximately three percentage points for the full year.  Excluding these structural changes, core constant currency net revenue is expected to grow mid-single-digits, consistent with the company’s prior guidance.

 

The company is targeting approximately $8 billion in cash flow from operating activities and more than $6 billion in management operating cash flow (excluding certain items) in 2012, which includes the favorable impact of an expected 10 percent reduction in capital spending and improved working capital efficiency.  The company also made a pretax discretionary pension and retiree medical contribution of $1 billion in the first quarter of 2012.

 

Reflecting its commitment to return capital to shareholders, the company anticipates more than $3 billion in share repurchases for 2012, and expects to pay $3.3 billion in dividends.  The dividend reflects a 4 percent dividend per share increase effective with the dividend payable in June 2012, making 2012 the company’s 40th consecutive year of dividend per share growth.

 

Conference Call

At 8 a.m. (Eastern Time) today, the company will host a conference call with investors to discuss first-quarter results and the outlook for 2012. Further details, including a slide presentation accompanying the call, will be accessible on the company’s website at www.pepsico.com/investors in advance of the call.

 

About PepsiCo

PepsiCo is a global food and beverage leader with net revenues of more than $65 billion and a product portfolio that includes 22 brands that generate more than $1 billion each in annual retail sales. Our main businesses – Quaker, Tropicana, Gatorade, Frito-Lay and Pepsi-Cola – make hundreds of enjoyable foods and beverages that are loved throughout the world. PepsiCo’s people are united by our unique commitment to sustainable growth by investing in a healthier future for people and our planet, which we believe also means a more successful future for PepsiCo. We call this commitment Performance with Purpose: PepsiCo’s promise to provide a wide range of foods and beverages for local tastes; to find innovative ways to minimize our impact on the environment by conserving energy and water and reducing packaging volume; to provide a great workplace for our associates; and to respect, support and invest in the local communities where we operate. For more information, please visit www.pepsico.com.