PEPSICO, INC. 
By PURCHASE, N.Y., April 17, 2014 /PRNewswire/ -- PepsiCo, Inc. (NYSE: PEP) today reported core earnings per share of $0.83 for the first quarter, an increase of 7 percent. Core constant currency EPS increased 10 percent on organic revenue growth of 4.0 percent.
http://photos.prnewswire.com/prnvar/20140415/73233
"We're pleased with our performance in the first quarter of 2014. PepsiCo delivered mid-single-digit organic revenue growth and double-digit core constant currency earnings per share growth, despite ongoing macroeconomic volatility, political instability and other challenging marketplace conditions in a number of our key markets," said Chairman and CEO Indra Nooyi.
"We continue to perform well, in part, because we have strong, balanced portfolios of brands, products and geographies that enable us to capture growth opportunities across multiple demand spaces while we responsibly manage through the volatility and challenges in other parts of the business.
"We're also benefiting from the investments we've recently made to strengthen our brands, innovate more effectively, and drive better execution; all while operating more efficiently by leveraging our global scale and capabilities.
"We remain confident in achieving our financial goals for the full year and believe that we have the right strategies in place to create long-term value for our shareholders."
(1)Please refer to the Glossary for the definitions of Non-GAAP financial measures including core, constant currency, organic and free cash flow.
Summary First Quarter 2014 Performance (Percent Growth)
------------------------------------------------------
Reported Core Constant Organicb
Currencya
---------
Volume
------
Snacks 2 2
------ --- ---
Beverages - -
--------- --- ---
Net
Revenue - 4
-------- --- ---
Operating
Profitc 9 7
--------- --- ---
EPS 15 10
--- --- ---
Net Revenue Core
Constant
Currency
Organic Operating Organic Operating
Volumeb Profitc Revenueb Profita
------- ------- -------- -------
PAF 1 1 2 5 5
--- --- --- --- --- ---
FLNA 3 3 4 4 6
---- --- --- --- --- ---
LAF (3) (2) 7 9 13
--- --- --- --- --- ---
QFNA 3 - (11) 1 (9)
---- --- --- --- --- ---
PAB - - (24) 1 (3)
--- --- --- --- --- ---
Europe 3/3d 1 72 7 64
------ ---- --- --- --- ---
AMEA 4/(1)d (5) 5 6 10
---- ------ --- --- --- ---
Total Divisions 2/- d - (2) 4 6
--------------- ----- --- --- --- ---
Total PepsiCo 2/- d - 9 4 7
------------- ----- --- --- --- ---
(a )Core constant currency results are non-GAAP financial measures that exclude certain items affecting comparability. For more information about our core constant currency results, see "Reconciliation of GAAP and Non-GAAP Information" in the attached exhibits. Please refer to the Glossary for definitions of "Core" and "Constant Currency".
(b )Organic results are non-GAAP financial measures that adjust for impacts of acquisitions, divestitures and other structural changes and foreign exchange translation. For more information about our organic results, see "Reconciliation of GAAP and Non-GAAP Information" in the attached exhibits. Please refer to the Glossary for the definition of "Organic".
(c )The reported operating profit performance was impacted by certain items excluded from our core results in both 2014 and 2013. 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".
(d)( )Snacks/Beverages.
Summary of First Quarter Financial Performance:
-- Organic revenue grew 4.0 percent and reported net revenue was even
versus the prior-year quarter. Structural changes negatively impacted
reported net revenue performance by nearly half a percentage point and
foreign exchange translation had a 3-percentage-point unfavorable impact
in the quarter.
-- Organic revenue grew 5 percent for global snacks and 3 percent for
global beverages in the quarter. On a reported basis, revenue grew 1
percent for global snacks and declined 1 percent for global beverages,
reflecting unfavorable foreign exchange translation and structural
changes. Each operating segment had organic revenue growth in the
quarter.
-- Developing and emerging market organic revenue grew 9 percent in the
quarter. On a reported basis, developing and emerging market net revenue
declined 2 percent in the quarter, reflecting structural changes and
unfavorable foreign exchange translation.
-- Core gross margin expanded 40 basis points in the quarter reflecting
implementation of effective revenue management strategies and
productivity initiatives. Core operating margin expanded 50 basis points
in the quarter. Reported gross margin increased 80 basis points and
reported operating margin increased 110 basis points in the quarter.
-- Core constant currency operating profit increased 7 percent and included
a $31 million one-time gain related to the sale of agricultural assets
in Europe. Reported operating profit increased 9 percent and included
the net impact of mark-to-market gains on commodity hedges, certain
restructuring costs in 2014 and the lapping of the devaluation of net
monetary assets in Venezuela in the prior-year quarter.
-- The company's core effective tax rate was 23.7 percent and the reported
effective tax rate was 24.1 percent, both below the prior-year quarter.
-- Core EPS was $0.83 and reported EPS was $0.79. Core EPS includes a $0.02
impact from the one-time gain related to the sale of agricultural assets
in Europe. Core EPS excludes a net impact of $0.01 per share related to
mark-to-market net gains on commodity hedges and a $0.05 negative impact
from restructuring charges. Mark-to-market net gains and losses on
commodity hedges are subsequently reflected in core division results
when the divisions recognize the cost of the underlying commodity in
operating profit.
-- Cash flow provided by operating activities was $181 million.
-- Company is on track to deliver targeted $1 billion of productivity
savings in 2014.
-- Company expects to return a total of $8.7 billion to shareholders in
2014 through approximately $5.0 billion in share repurchases and $3.7
billion in dividends.
Division Operating Summaries:
PepsiCo Americas Foods (PAF)
Organic revenue grew 5 percent in the quarter driven by 1 percentage point of organic volume growth and 4 percentage points of effective net pricing. Each division within PAF had organic revenue growth in the quarter. Reported net revenue increased 1 percent, reflecting a 4-percentage-point unfavorable impact from foreign exchange translation.
Core constant currency operating profit increased 5 percent, reflecting organic revenue gains and productivity initiatives, partially offset by increased advertising and marketing expense.
Frito-Lay North America (FLNA)
Organic revenue increased 4 percent in the quarter, reflecting a 3-percentage-point increase in organic volume and 1 percentage point of effective net pricing. Reported net revenue increased 3 percent, reflecting a 1-percentage-point unfavorable foreign exchange translation impact.
Core constant currency operating profit grew 6 percent in the quarter, reflecting organic revenue gains and productivity savings, partially offset by operating cost inflation and a double-digit increase in advertising and marketing expense.
Latin America Foods (LAF)
Organic revenue grew 9 percent in the quarter, reflecting 12 percentage points of effective net pricing, partially offset by a 3 percent volume decline. Reported net revenue declined 2 percent in the quarter, reflecting an 11-percentage-point unfavorable foreign exchange translation impact.
Organic revenue in Mexico declined low-single digits reflecting the adverse impact of the enactment of taxes on certain food products. The balance of our Latin America Foods business experienced double-digit organic revenue growth. Reported net revenue declined mid-single-digits in Mexico and increased low-single-digits in the balance of our Latin America Foods business, also reflecting the impact of unfavorable foreign exchange translation.
Core constant currency operating profit increased 13 percent reflecting organic revenue growth and productivity gains, partially offset by operating cost and commodity cost inflation.
Quaker Foods North America (QFNA)
Organic revenue increased 1 percent in the quarter. Reported net revenue was even versus the prior-year quarter, reflecting a 1-percentage-point unfavorable foreign exchange translation impact. Core constant currency operating profit declined 9 percent, reflecting the impact of oat supply disruptions, unfavorable net pricing and operating cost inflation, partially offset by productivity gains.
PepsiCo Americas Beverages (PAB)
Organic revenue increased 1 percent in the quarter, reflecting 1 percentage point of effective net pricing and even organic volume. During the quarter, PAB maintained its value market share position in the U.S. in measured channels. Reported net revenue was even versus the prior-year quarter, reflecting a 1-percentage-point impact from unfavorable foreign exchange translation.
In North America, non-carbonated beverage volume grew 2 percent, and carbonated soft drink volume declined 1 percent. Latin America beverage volume decreased 1 percent driven by volume declines in Mexico related to the enactment of taxes on certain beverage products.
Core constant currency operating profit declined 3 percent, reflecting operating cost inflation and the adverse impact of the tax in Mexico, partially offset by effective net pricing, productivity gains and adjustments recognized through the company's share of the results of a joint venture.
Europe
Organic revenue grew 7 percent, reflecting balanced volume growth and effective net pricing. Snacks and beverage volume each rose 3 percent. Reported net revenue increased 1 percent, including a 6-percentage-point unfavorable foreign exchange translation impact.
Core constant currency operating profit growth of 64 percent in the quarter included a $31 million contribution from the one-time gain on the sale of agricultural assets and reflects organic revenue growth and productivity savings, partially offset by commodity cost and operating cost inflation.
Asia, Middle East & Africa (AMEA)
Organic revenue grew 6 percent in the quarter, lapping double-digit organic growth in the prior-year quarter. Growth was driven by snacks volume growth and effective net pricing. Reported net revenue declined 5 percent, reflecting a 5-percentage-point negative impact from the refranchising of bottling operations in Vietnam and a 5-percentage-point unfavorable impact from foreign exchange translation.
Core constant currency operating profit increased 10 percent, reflecting organic revenue growth and productivity gains, partially offset by operating cost inflation.
2014 Guidance and Outlook:
Consistent with its previous guidance for 2014, the company expects 7 percent core constant currency EPS growth versus its fiscal 2013 core EPS of $4.37. Based on the current foreign exchange market consensus, the company currently expects foreign exchange translation to have an unfavorable impact of approximately 4 percentage points on full year core EPS growth in 2014.
Excluding the impact of structural changes and foreign exchange translation, organic revenue in 2014 is expected to grow mid-single digits versus 2013, consistent with the company's long-term target. Based on the current foreign exchange market consensus, the company currently expects foreign exchange translation to have an unfavorable impact of approximately 3 percentage points on full year net revenue growth in 2014.
For 2014, the company expects low-single-digit commodity inflation and productivity savings of approximately $1 billion. The company expects higher interest expense driven by increased debt balances and a core effective tax rate of approximately 25 percent.
The company is targeting over $10 billion in cash flow from operating activities and more than $7 billion in free cash flow (excluding certain items) in 2014. Net capital spending is expected to be approximately $3 billion in 2014, within the company's long-term capital spending target of less than or equal to 5 percent of net revenue.
The company expects to return a total of $8.7 billion to shareholders in 2014 through dividends of approximately $3.7 billion and share repurchases of approximately $5.0 billion.
Conference Call:
At 8 a.m. (Eastern Time) today, the company will host a conference call with investors and financial analysts to discuss first-quarter 2014 results and the outlook for 2014. Further details, including a slide presentation accompanying the call, will be accessible on the company's website at www.pepsico.com/investors.
PepsiCo, Inc. and Subsidiaries
Condensed Consolidated Statement of Income
(in millions except per share amounts, and unaudited)
12 Weeks Ended
--------------
3/22/2014 3/23/2013 Change
-------- -------- ------
Net Revenue $12,623 $12,581 - %
Cost of sales 5,747 5,834 (1.5)%
Selling,
general and
administrative
expenses 5,048 5,066 - %
Amortization
of
intangible
assets 21 23 (9)%
--- ---
Operating
Profit 1,807 1,658 9%
Interest
expense (201) (214) (6)%
Interest
income and
other 10 27 (62)%
--- ---
Income before
income taxes 1,616 1,471 10%
Provision for
income taxes 389 386 1%
--- ---
Net income 1,227 1,085 13%
Less: Net
income
attributable
to
noncontrolling
interests 11 10 10%
--- ---
Net Income
Attributable
to PepsiCo $1,216 $1,075 13%
====== ======
Diluted
Net Income
Attributable
to PepsiCo
per Common
Share $0.79 $0.69 15%
Weighted-
average
common
shares
outstanding 1,540 1,563
Cash
dividends
declared per
common share $0.5675 $0.5375
A - 1
PepsiCo, Inc. and Subsidiaries
Supplemental Financial Information
(in millions, unaudited)
12 Weeks Ended
--------------
3/22/2014 3/23/2013 Change
-------- -------- ------
Net Revenue
-----------
Frito-Lay North
America $3,219 $3,123 3%
Quaker Foods North
America 634 634 - %
Latin America Foods 1,338 1,367 (2)%
----- -----
PepsiCo Americas
Foods 5,191 5,124 1%
PepsiCo Americas
Beverages 4,426 4,420 - %
Europe 1,961 1,942 1%
Asia, Middle East &
Africa 1,045 1,095 (5)%
----- -----
Total Net Revenue $12,623 $12,581 - %
======= =======
Operating Profit
----------------
Frito-Lay North
America $862 $828 4%
Quaker Foods North
America 160 180 (11)%
Latin America Foods 232 216 7%
--- ---
PepsiCo Americas
Foods 1,254 1,224 2%
PepsiCo Americas
Beverages 429 565 (24)%
Europe 152 88 72%
Asia, Middle East &
Africa 194 184 5%
--- ---
Division Operating
Profit 2,029 2,061 (2)%
Corporate Unallocated
Commodity Mark-to-
Market Net Impact 34 (16)
Restructuring and
Impairment Charges 3 (1)
Venezuela Currency
Devaluation - (124)
Other (259) (262)
---- ----
(222) (403) (45)%
---- ----
Total Operating
Profit $1,807 $1,658 9%
====== ======
A - 2
PepsiCo, Inc. and Subsidiaries
Condensed Consolidated Statement of Cash Flows
(in millions, unaudited)
12 Weeks Ended
--------------
3/22/2014 3/23/2013
-------- --------
Operating Activities
Net income $1,227 $1,085
Depreciation and
amortization 532 551
Stock-based compensation
expense 72 77
Cash payments for merger and
integration charges - (11)
Restructuring and impairment
charges 98 11
Cash payments for
restructuring charges (25) (30)
Non-cash foreign exchange
loss related to Venezuela
devaluation - 111
Excess tax benefits from
share-based payment
arrangements (47) (36)
Pension and retiree medical
plan expenses 119 149
Pension and retiree medical
plan contributions (84) (87)
Deferred income taxes and
other tax charges and
credits 62 (23)
Change in accounts and notes
receivable (358) (175)
Change in inventories (406) (351)
Change in prepaid expenses
and other current assets (234) (201)
Change in accounts payable
and other current
liabilities (813) (578)
Change in income taxes
payable 175 244
Other, net (137) (34)
---- ---
Net Cash Provided by
Operating Activities 181 702
--- ---
Investing Activities
Capital spending (355) (303)
Sales of property, plant and
equipment 7 8
Acquisitions and investments
in noncontrolled affiliates (24) (30)
Divestitures 85 -
Short-term investments, net 59 40
Other investing, net 5 -
--- ---
Net Cash Used for Investing
Activities (223) (285)
---- ----
Financing Activities
Proceeds from issuances of
long-term debt 1,990 2,491
Payments of long-term debt (1,652) (1,190)
Short-term borrowings, net 2,125 (153)
Cash dividends paid (888) (831)
Share repurchases - common (1,249) (626)
Share repurchases -
preferred (2) (2)
Proceeds from exercises of
stock options 171 449
Excess tax benefits from
share-based payment
arrangements 47 36
Other financing - (1)
--- ---
Net Cash Provided by
Financing Activities 542 173
--- ---
Effect of exchange rate
changes on cash and cash
equivalents (36) (172)
Net Increase in Cash and
Cash Equivalents 464 418
Cash and Cash Equivalents,
Beginning of Year 9,375 6,297
----- -----
Cash and Cash Equivalents,
End of Period $9,839 $6,715
====== ======
A - 3
PepsiCo, Inc. and Subsidiaries
Condensed Consolidated Balance Sheet
(in millions except per share amounts)
3/22/2014 12/28/2013
--------- ---------
(unaudited)
Assets
Current Assets
Cash and cash equivalents $9,839 $9,375
Short-term investments 247 303
Accounts and notes receivable,
net 7,262 6,954
Inventories
Raw materials 1,794 1,732
Work-in-process 235 168
Finished goods 1,719 1,509
----- -----
3,748 3,409
Prepaid expenses and other
current assets 2,189 2,162
----- -----
Total Current Assets 23,285 22,203
Property, plant and equipment,
net 18,129 18,575
Amortizable intangible assets,
net 1,593 1,638
Goodwill 16,310 16,613
Other nonamortizable
intangible assets 14,053 14,401
------ ------
Nonamortizable Intangible
Assets 30,363 31,014
Investments in noncontrolled
affiliates 1,890 1,841
Other assets 2,233 2,207
----- -----
Total Assets $77,493 $77,478
======= =======
Liabilities and Equity
Current Liabilities
Short-term obligations $7,832 $5,306
Accounts payable and other
current liabilities 11,625 12,533
Total Current Liabilities 19,457 17,839
Long-term debt obligations 24,240 24,333
Other liabilities 4,811 4,931
Deferred income taxes 6,092 5,986
----- -----
Total Liabilities 54,600 53,089
Commitments and Contingencies
Preferred stock, no par value 41 41
Repurchased preferred stock (173) (171)
PepsiCo Common Shareholders' Equity
Common stock, par value 1
(2)/3 ¢ per share (authorized
3,600 shares, issued, net of
repurchased common stock at
par value: 1,519 and 1,529
shares, respectively) 25 25
Capital in excess of par value 3,942 4,095
Retained earnings 46,770 46,420
Accumulated other
comprehensive loss (5,940) (5,127)
Repurchased common stock, in
excess of par value (347 and
337 shares, respectively) (21,892) (21,004)
------- -------
Total PepsiCo Common
Shareholders' Equity 22,905 24,409
Noncontrolling interests 120 110
--- ---
Total Equity 22,893 24,389
------ ------
Total Liabilities and Equity $77,493 $77,478
======= =======
A - 4
PepsiCo, Inc. and Subsidiaries
Supplemental Share and Stock-Based Compensation Data
(in millions except dollar amounts, unaudited)
12 Weeks Ended
--------------
3/22/2014 3/23/2013
-------- --------
Beginning Net Shares
Outstanding 1,529 1,544
Options Exercised and
Restricted Stock Units
Converted 5 10
Shares Repurchased (15) (9)
--- ---
Ending Net Shares
Outstanding 1,519 1,545
===== =====
Weighted Average Basic 1,524 1,544
Dilutive Securities:
Options 9 10
Restricted Stock, PEPUnits
and Other 6 8
ESOP Convertible Preferred
Stock 1 1
--- ---
Weighted Average Diluted 1,540 1,563
===== =====
Average Share Price for
the Period $81.09 $73.67
Growth Versus Prior Year 10% 14%
Options Outstanding 49 61
Options in the Money 49 58
Dilutive Shares from
Options 9 10
Dilutive Shares from
Options as a % of Options
in the Money 19% 17%
Average Exercise Price of
Options in the Money $63.00 $60.38
Restricted Stock, PEPUnits
and Other Outstanding 13 15
Dilutive Shares from
Restricted Stock,
PEPUnits and Other 6 8
Average Intrinsic Value of
Restricted Stock Units
Outstanding (a) $74.14 $68.24
Average Intrinsic Value of
PEPUnits Outstanding (a) $60.83 $66.65
(a) Weighted-average intrinsic value at grant date.
A - 5
PepsiCo, Inc. and Subsidiaries
Reconciliation of GAAP and Non-GAAP Information
Organic Growth Rates
12 Weeks Ended March 22, 2014 and March 23, 2013
(unaudited)
Percent Impact GAAP Non-GAAP
Measure Measure
-------
Reported Organic
% Change % Change
(a)
-------- ---------
Net Revenue Year over Year % Change Volume Effective Acquisitions
and Foreign 12 Weeks 12 Weeks
net
pricing divestitures exchange Ended Ended
3/22/2014
translation 3/22/2014
---
Frito-Lay North America 2 1 - (1) 3 4
Quaker Foods North America 1 - - (1) - 1
Latin America Foods (3) 12 - (11) (2) 9
PepsiCo Americas Foods 1 4 - (4) 1 5
PepsiCo Americas Beverages - 1 - (1) - 1
Europe 3 4 - (6) 1 7
Asia, Middle East & Africa 2 4 (5) (5) (5) 6
Total PepsiCo 1 3 - (3) - 4
Percent Impact GAAP Non-GAAP
Measure Measure
-------
Reported Organic
% Change
(a)
% Change
--------
Net Revenue Year over Year % Change Volume Effective Acquisitions
and Foreign 12 Weeks 12 Weeks
net
pricing divestitures exchange Ended Ended
3/23/2013
translation 3/23/2013
---
Frito-Lay North America 4 - - - 4 4
Quaker Foods North America 3 (1) - - 2 2
Latin America Foods 1 13 - (3) 11 14
PepsiCo Americas Foods 3 3 - (1) 5 6
PepsiCo Americas Beverages (5) 5 - - (1) -
Europe 2 2 - 1 5 4
Asia, Middle East & Africa 15 - (27) (2) (14) 15
Total PepsiCo 1 3 (3) (0.5) 1 4
(a) Organic percent change is a financial measure that is not in accordance with GAAP and is calculated by excluding the impact of acquisitions and divestitures and foreign exchange translation from reported
growth.
Note - Certain amounts above may not sum due to rounding.
A - 6
PepsiCo, Inc. and Subsidiaries
Reconciliation of GAAP and Non-GAAP Information (cont.)
Year over Year Growth Rates
12 Weeks Ended March 22, 2014 and March 23, 2013
(unaudited)
GAAP Non- Non-
Measure GAAP GAAP
Measure Measure
-------
Reported Percent Impact of Non-Core
Adjustments Core (a) Percent Core
% Change % Change Impact
of Constant
Currency
(a)
% Change
--------
Operating Profit Year 12 Weeks Commodity Merger Restructuring Venezuela 12 Weeks Foreign 12 Weeks
over Year % Change Ended mark-to- and and currency Ended exchange Ended
3/22/2014 market
net integration impairment devaluation 3/22/2014 translation 3/22/2014
impact charges charges
---
Frito-Lay North America 4 - - 1 - 5 1 6
Quaker Foods North America (11) - - 1 - (10) 1 (9)
Latin America Foods 7 - - (4) - 3.5 10 13
PepsiCo Americas Foods 2 - - - - 3 2 5
PepsiCo Americas Beverages (24) - - 15 2 (7) 3 (3)
Europe 72 - (2) (8) - 62 1 64
Asia, Middle East & Africa 5 - - 2 - 7 3 10
Division Operating Profit (2) - - 4 1 3 2.5 6
Impact of Corporate Unallocated 11 (3) - 1 (7) 1 - 1
--- --- --- --- --- --- --- ---
Total Operating Profit 9 (3) - 5 (7) 4 3 7
Net Income Attributable 13 5 3 9
to PepsiCo
Net Income Attributable 15 7 3 10
to PepsiCo per common
share - diluted
GAAP Non- Non-
Measure GAAP GAAP
Measure Measure
-------
Reported Percent Impact of Non-Core
Adjustments Core (a) Percent Core
% Change % Change Impact
of Constant
Currency
(a)
% Change
--------
Operating Profit Year 12 Weeks Commodity Merger Restructuring Venezuela 12 Weeks Foreign 12 Weeks
Ended Ended
over Year % Change Ended mark-to- and and currency 3/23/2013 exchange 3/23/2013
3/23/2013 market
net integration impairment devaluation translation
impact charges charges
---
Frito-Lay North America 6 - - (1) - 5 - 5
Quaker Foods North America (4) - - (3) - (6) - (6)
Latin America Foods 18 - - (1) - 17 8 25
PepsiCo Americas Foods 6 - - (1) - 5 1 7
PepsiCo Americas Beverages 8 - - (1.5) (2.5) 3 - 4
Europe 10 - (1) 6 - 14 (0.5) 14
Asia, Middle East & Africa 24 - - (5) - 18 1 19
Division Operating Profit 8 - - (1) (1) 6 1 7
Impact of Corporate Unallocated (12) 6 - - 7 1 - 1.5
--- --- --- --- --- --- --- ---
Total Operating Profit (4) 6 - (1) 6 7 1 9
Net Income Attributable to PepsiCo (5) 10 1 12
Net Income Attributable to PepsiCo per
common share -diluted (3) 12 1 13
(a) Core results and core constant currency results are financial measures that are not in accordance with GAAP and exclude the above non-core adjustments. See A-13 through A-14 for a discussion of each of these adjustments.
Note - Certain amounts above may not sum due to rounding.
A - 7
PepsiCo, Inc. and Subsidiaries
Reconciliation of GAAP and Non-GAAP Information (cont.)
Certain Line Items
12 Weeks Ended March 22, 2014 and March 23, 2013
(in millions except per share amounts, unaudited)
GAAP Non-GAAP
Measure
Measure
-------
Reported Non-Core
Adjustments Core (a)
-------- ------------ --------
12 Weeks Commodity Restructuring
mark- and
to- 12 Weeks
market
net impairment
Ended impact charges Ended
3/22/2014
3/22/2014
--------
Cost of sales $5,747 $46 $ - $5,793
Selling, general and administrative expenses $5,048 $(12) $(98) $4,938
Operating profit $1,807 $(34) $98 $1,871
Provision for income taxes $389 $(13) $22 $398
Net income attributable to PepsiCo $1,216 $(21) $76 $1,271
Net income attributable to PepsiCo per common share - diluted $0.79 $(0.01) $0.05 $0.83
Effective tax rate 24.1% 23.7%
GAAP Non-GAAP
Measure Measure
------- -------
Reported Non-Core Adjustments Core (a)
-------- -------------------- --------
12 Weeks Commodity Merger Restructuring Venezuela
mark- and currency
to- devaluation 12 Weeks
Ended market
net impairment Ended
3/23/2013 impact and charges 3/23/2013
integration
charges
---
Cost of sales $5,834 $(14) $ - $ - $ - $5,820
Selling, general and administrative expenses $5,066 $(2) $(1) $(11) $(111) $4,941
Operating profit $1,658 $16 $1 $11 $111 $1,797
Provision for income taxes $386 $5 $ - $3 $ - $394
Net income attributable to PepsiCo $1,075 $11 $1 $8 $111 $1,206
Net income attributable to PepsiCo per common share - diluted $0.69 $0.01 $ - $0.01 $0.07 $0.77
Effective tax rate 26.3% 24.5%
(a) Core results are financial measures that are not in accordance with GAAP and exclude the above non-core adjustments. See A-13 through A-14 for a discussion of each of these adjustments.
Note - Certain amounts above may not sum due to rounding.
A - 8
PepsiCo, Inc. and Subsidiaries
Reconciliation of GAAP and Non-GAAP Information (cont.)
Operating Profit by Division
12 Weeks Ended March 22, 2014 and March 23, 2013
(in millions, unaudited)
GAAP Non-Core Adjustments Non-GAAP
Measure Measure
------- -------
Reported Core (a)
-------- -------
Operating Profit 12 Weeks Commodity Restructuring 12 Weeks
Ended mark-to- and Ended
3/22/2014 market impairment 3/22/2014
net impact charges
---
Frito-Lay North America $862 $ - $13 $875
Quaker Foods North America 160 - 2 162
Latin America Foods 232 - (4) 228
--- --- --- ---
PepsiCo Americas Foods 1,254 - 11 1,265
PepsiCo Americas Beverages 429 - 86 515
Europe 152 - - 152
Asia, Middle East & Africa 194 - 4 198
--- --- --- ---
Division Operating Profit 2,029 - 101 2,130
Corporate Unallocated (222) (34) (3) (259)
---- --- --- ----
Total Operating Profit $1,807 $(34) $98 $1,871
====== ==== === ======
GAAP Non-Core Adjustments Non-
Measure GAAP
Measure
-------
Reported Core (a)
-------- --------
Operating Profit 12 Weeks Commodity Merger Restructuring Venezuela
currency
devaluation 12 Weeks
Ended Ended
3/23/2013 mark-
to-
market and and 3/23/2013
net
impact integration impairment
charges charges
---
Frito-Lay North America $828 $ - $ - $2 $ - $830
Quaker Foods North America 180 - - (1) - 179
Latin America Foods 216 - - 4 - 220
--- --- --- --- --- ---
PepsiCo Americas Foods 1,224 - - 5 - 1,229
PepsiCo Americas Beverages 565 - - - (13) 552
Europe 88 - 1 4 - 93
Asia, Middle East & Africa 184 - - 1 - 185
--- --- --- --- --- ---
Division Operating Profit 2,061 - 1 10 (13) 2,059
Corporate Unallocated (403) 16 - 1 124 (262)
---- --- --- --- --- ----
Total Operating Profit $1,658 $16 $1 $11 $111 $1,797
====== == = == ==== ======
(a) Core results are financial measures that are not in accordance with GAAP and exclude the above non-core adjustments. See A-13 through A-14 for a discussion of each of these adjustments.
A - 9
PepsiCo, Inc. and Subsidiaries
Reconciliation of GAAP and Non-GAAP
Information (cont.)
(unaudited)
Global Snacks Net Revenue Growth Reconciliation
12 Weeks Ended
3/22/2014
---------
Reported Net Revenue
Growth 1%
Impact of Foreign
Exchange Translation 4
---
Organic Revenue Growth 5%
===
Global Beverages Net Revenue Growth Reconciliation
12 Weeks
Ended
3/22/2014
--------
Reported Net Revenue Growth (1)%
Impact of Acquisitions and
Divestitures 1
Impact of Foreign Exchange
Translation 2
---
Organic Revenue Growth 3%
===
Developing and Emerging Markets Net Revenue Growth
Reconciliation
12 Weeks
Ended
3/22/2014
--------
Reported Developing and
Emerging Markets Net
Revenue Growth (2)%
Impact of Acquisitions and
Divestitures 1.5
Impact of Foreign Exchange
Translation 10
---
Developing and Emerging
Markets Organic Revenue
Growth 9%
===
Gross Margin Growth Reconciliation
12 Weeks
Ended
3/22/2014
--------
Reported Gross Margin
Growth 84 bps
Commodity Mark-to-
Market Net Impact (47)
Core Gross Margin Growth 37 bps
===
Operating Margin Growth Reconciliation
12 Weeks
Ended
3/22/2014
--------
Reported Operating Margin
Growth 113 bps
Commodity Mark-to-Market
Net Impact (39)
Merger and Integration
Charges (1)
Restructuring and
Impairment Charges 69
Venezuela Currency
Devaluation (88)
---
Core Operating Margin
Growth 54 bps
===
Note - Certain amounts above may not sum due to
rounding.
A - 10
PepsiCo, Inc. and Subsidiaries
Reconciliation of GAAP and Non-GAAP Information (cont.)
(unaudited)
Net Revenue Year-over-Year Growth Reconciliation
GAAP Measure Non-GAAP Measure
------------ ----------------
Reported Growth Percent Impact of Organic Growth
--------------- ----------------- --------------
12 Weeks Ended Foreign Exchange
Translation 12 Weeks Ended
3/22/2014 3/22/2014
--------- ---------
Mexico
(Foods) (MSD) % MSD % (LSD) %
LAF
(excluding
Mexico) LSD % DD % DD %
Diluted EPS Reconciliation
Year
Ended
12/28/2013
---------
Reported Diluted EPS $4.32
Commodity Mark-to-Market
Net Impact 0.03
Merger and Integration
Charges 0.01
Restructuring and
Impairment Charges 0.08
Venezuela Currency
Devaluation 0.07
Tax Benefits (0.13)
Core Diluted EPS $4.37
=====
Net Cash Provided by Operating
Activities Reconciliation (in
billions)
2014
Guidance
--------
Net Cash Provided by
Operating
Activities $ ~10
Net Capital Spending ~(3)
---
Free Cash Flow ~7
Certain Other Items
(a) ~0
Free Cash Flow
Excluding Certain
Other Items $ ~7
===========
(a) Certain other items
include discretionary
pension and retiree medical
contributions, merger and
integration payments,
payments related to
restructuring charges and
net capital investments
related to restructuring
plan.
Note - Certain amounts above
may not sum due to
rounding.
A - 11
Cautionary Statement
Statements in this communication that are "forward-looking statements," including our 2014 guidance, are based on currently available information, operating plans and projections about future events and trends. Terminology such as "aim," "anticipate," "believe," "drive," "estimate," "expect," "expressed confidence," "forecast," "future," "goals," "guidance," "intend," "may," "plan," "position," "potential," "project," " seek," "should," "strategy," "target," "will" or similar statements or variations of such terms are intended to identify forward-looking statements, although not all forward-looking statements contain such terms. Forward- looking statements inherently involve risks and uncertainties that could cause actual results to differ materially from those predicted in such forward-looking statements. Such risks and uncertainties include, but are not limited to: changes in demand for PepsiCo's products, as a result of changes in consumer preferences or otherwise; changes in the legal and regulatory environment; imposition of new taxes, disagreements with tax authorities or additional tax liabilities; PepsiCo's ability to compete effectively; PepsiCo's ability to grow its business in developing and emerging markets or unstable political conditions, civil unrest or other developments and risks in the markets where PepsiCo's products are sold; unfavorable economic conditions in the countries in which PepsiCo operates; increased costs, disruption of supply or shortages of raw materials and other supplies; failure to realize anticipated benefits from PepsiCo's productivity initiatives or global operating model; disruption of PepsiCo's supply chain; damage to PepsiCo's reputation; failure to successfully complete or integrate acquisitions and joint ventures into PepsiCo's existing operations or to complete or manage divestitures or refranchisings; PepsiCo's ability to hire or retain key employees or a highly skilled and diverse workforce; trade consolidation or the loss of any key customer; any downgrade or potential downgrade of PepsiCo's credit ratings; PepsiCo's ability to protect its information systems against a cybersecurity incident; PepsiCo's ability to build and sustain proper information technology infrastructure, successfully implement its ongoing business transformation initiative or share services for certain functions effectively; fluctuations or other changes in exchange rates; climate change, or legal, regulatory or market measures to address climate change; failure to successfully negotiate collective bargaining agreements or strikes or work stoppages; any infringement of or challenge to PepsiCo's intellectual property rights; potential liabilities and costs from litigation or legal proceedings; and other factors that may adversely affect the price of PepsiCo's common stock and financial performance.
For additional information on these and other factors that could cause PepsiCo's actual results to materially differ from those set forth herein, please see PepsiCo's filings with the Securities and Exchange Commission, including its most recent annual report on Form 10-K and subsequent reports on Forms 10-Q and 8-K. Investors are cautioned not to place undue reliance on any such forward-looking statements, which speak only as of the date they are made. PepsiCo undertakes no obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise.
Miscellaneous Disclosures
In discussing financial results and guidance, the company may refer to certain non-GAAP measures. Reconciliations of any such non-GAAP measures to the most directly comparable financial measures in accordance with GAAP can be found in the attached exhibits, as well as on the company's website at www.pepsico.com in the "Investors" section under "Events & Presentations." Our non-GAAP measures exclude from reported results those items that management believes are not indicative of our ongoing performance and reflect how management evaluates our operating results and trends.
Glossary
Acquisitions and divestitures: All merger and acquisition activity, including the impact of acquisitions, divestitures and changes in ownership or control in consolidated subsidiaries and nonconsolidated equity investees.
Beverage volume: Volume shipped to retailers and independent distributors from both PepsiCo and our bottlers.
Constant currency: Financial results assuming constant foreign currency exchange rates used for translation based on the rates in effect for the comparable prior-year period. In order to compute our constant currency results, we multiply or divide, as appropriate, our current year U.S. dollar results by the current year average foreign exchange rates and then multiply or divide, as appropriate, those amounts by the prior year average foreign exchange rates.
Core: Core results are non-GAAP financial measures which exclude certain items from our historical results. In 2014, core results exclude the commodity mark-to-market net impact included in corporate unallocated expenses and restructuring and impairment charges. In 2013, core results exclude the commodity mark-to-market net impact included in corporate unallocated expenses, merger and integration charges in connection with our acquisition of Wimm-Bill-Dann Foods OJSC (WBD), restructuring and impairment charges and a charge related to the 2013 Venezuela currency devaluation. See "Reconciliation of GAAP and Non-GAAP Information" for additional information.
A - 12
Division operating profit: The aggregation of the operating profit for each of our reportable segments, which excludes the impact of corporate unallocated expenses.
Effective net pricing: Reflects the year-over-year impact of discrete pricing actions, sales incentive activities and mix resulting from selling varying products in different package sizes and in different countries.
Free cash flow: Net cash provided by operating activities less capital spending plus sales of property, plant and equipment. See above for a reconciliation of this non-GAAP financial measure to the most directly comparable financial measure in accordance with GAAP (operating cash flow).
Free cash flow, excluding certain items: Free cash flow, excluding: (1) discretionary pension and retiree medical contributions, (2) merger and integration payments, (3) payments related to restructuring charges, (4) net capital investments related to restructuring plan and (5) the tax impacts associated with each of these items, as applicable. This non-GAAP financial measure is our primary measure used to monitor cash flow performance. See above for a reconciliation of this non-GAAP financial measure to the most directly comparable financial measure in accordance with GAAP (operating cash flow). See "Reconciliation of GAAP and Non-GAAP Information" for additional information.
Mark-to-market gain or loss or net impact: Change in market value for commodity contracts that we purchase to mitigate the volatility in costs of energy and raw materials that we consume. The market value is determined based on average prices on national exchanges and recently reported transactions in the marketplace.
Net capital spending: Capital spending less cash proceeds from sales of property, plant and equipment.
Organic: A measure that adjusts for impacts of acquisitions, divestitures and other structural changes, and in the case of organic revenue, foreign exchange translation. In excluding the impact of foreign exchange translation, we assume constant foreign exchange rates used for translation based on the rates in effect for the comparable prior-year period. See the definition of "Constant currency" for additional information.
Reconciliation of GAAP and Non-GAAP Information (unaudited)
Division operating profit, core results, core constant currency results and organic results are non-GAAP financial measures as they exclude certain items noted below. However, we believe investors should consider these measures as they are more indicative of our ongoing performance and reflect how management evaluates our operational results and trends.
Commodity mark-to-market net impact
In the 12 weeks ended March 22, 2014, we recognized $34 million of mark-to-market net gains on commodity hedges in corporate unallocated expenses. In the 12 weeks ended March 23, 2013, we recognized $16 million of mark-to-market net losses on commodity hedges in corporate unallocated expenses. We centrally manage commodity derivatives on behalf of our divisions. These commodity derivatives include agricultural products, energy and metals. Certain of these commodity derivatives do not qualify for hedge accounting treatment and are marked to market with the resulting gains and losses recognized in corporate unallocated expenses, as either cost of sales or selling, general and administrative expenses, depending on the underlying commodity. These gains and losses are subsequently reflected in division results when the divisions recognize the cost of the underlying commodity in operating profit.
Merger and integration charges
In the 12 weeks ended March 23, 2013, we incurred merger and integration charges of $1 million related to our acquisition of WBD, recorded in the Europe segment.
Restructuring and impairment charges
2014 Multi-Year Productivity Plan
In the 12 weeks ended March 22, 2014, we incurred restructuring and impairment charges of $96 million in conjunction with the multi-year productivity plan we publicly announced on February 13, 2014 (2014 Productivity Plan), including $12 million recorded in the FLNA segment, $2 million recorded in the QFNA segment, $1 million recorded in the LAF segment, $82 million recorded in the PAB segment, $2 million recorded in the Europe segment, $2 million recorded in the AMEA segment and income of $5 million recorded in corporate unallocated expenses representing adjustments of previously recorded amounts. The 2014 Productivity Plan includes the next generation of productivity initiatives that we believe will strengthen our food, snack and beverage businesses by accelerating our investment in manufacturing automation; further optimizing our global manufacturing footprint, including closing certain manufacturing facilities; re-engineering our go-to-market systems in developed markets; expanding shared services; and implementing simplified organization structures to drive efficiency.
A - 13
2012 Multi-Year Productivity Plan
In the 12 weeks ended March 22, 2014, we incurred restructuring and impairment charges of $2 million in conjunction with the multi-year productivity plan we publicly announced on February 9, 2012 (2012 Productivity Plan), including $1 million recorded in the FLNA segment, $4 million recorded in the PAB segment, $2 million recorded in the AMEA segment, $2 million recorded in corporate unallocated expenses and income of $5 million recorded in the LAF segment and $2 million recorded in the Europe segment representing adjustments of previously recorded amounts.
In the 12 weeks ended March 23, 2013, we incurred restructuring and impairment charges of $11 million in conjunction with our 2012 Productivity Plan, including $2 million recorded in the FLNA segment, $4 million recorded in the LAF segment, $4 million recorded in the Europe segment, $1 million recorded in the AMEA segment, $1 million recorded in corporate unallocated expenses and income of $1 million recorded in the QFNA segment representing adjustments of previously recorded amounts. The 2012 Productivity Plan includes actions in every aspect of our business that we believe will strengthen our complementary food, snack and beverage businesses by leveraging new technologies and processes across PepsiCo's operations, go-to-market and information systems; heightening the focus on best practice sharing across the globe; consolidating manufacturing, warehouse and sales facilities; and implementing simplified organization structures, with wider spans of control and fewer layers of management.
Venezuela currency devaluation
In the 12 weeks ended March 23, 2013 we recorded a $111 million net charge related to the devaluation of the bolivar for our Venezuela businesses. $124 million of this charge was recorded in corporate unallocated expenses, with the balance (equity income of $13 million) recorded in our PAB segment.
Free cash flow, excluding certain items
Additionally, free cash flow (excluding the items noted in the Net Cash Provided by Operating Activities Reconciliation table) is the primary measure management uses to monitor cash flow performance. This is not a measure defined by GAAP. Since net capital spending is essential to our product innovation initiatives and maintaining our operational capabilities, we believe that it is a recurring and necessary use of cash. As such, we believe investors should also consider net capital spending when evaluating our cash from operating activities. Additionally, we consider certain other items (included in the Net Cash Provided by Operating Activities Reconciliation table) in evaluating free cash flow which we believe investors should consider in evaluating our free cash flow results.
2014 guidance and long-term targets
Our 2014 core tax rate guidance and our 2014 core constant currency EPS guidance exclude the commodity mark-to-market net impact included in corporate unallocated expenses and restructuring and impairment charges. Our 2014 organic revenue guidance and our long-term organic revenue growth target exclude the impact of acquisitions, divestitures and other structural changes. In addition, our 2014 organic revenue guidance, our full-year projected 2014 core constant currency EPS guidance and our long-term organic revenue growth target exclude the impact of foreign exchange. We are not able to reconcile our full-year projected 2014 core tax rate guidance to our full-year projected 2014 reported tax rate or our 2014 core constant currency EPS guidance to our full-year projected 2014 reported EPS growth because we are unable to predict the 2014 impact of foreign exchange or the mark-to-market net impact on commodity hedges due to the unpredictability of future changes in foreign exchange rates and commodity prices. We are also unable to reconcile our full-year projected 2014 organic revenue guidance to our full-year projected 2014 reported net revenue growth or our long-term organic revenue growth target to our long-term net revenue growth target because we are unable to predict the 2014 and long-term impact of foreign exchange due to the unpredictability of future changes in foreign exchange rates. Therefore, we are unable to provide a reconciliation of these measures.
A - 14
Logo - http://photos.prnewswire.com/prnh/20140415/73233
SOURCE PepsiCo
