September 11-15, 2017

PepsiCo Reports 5 Percent Q3 Net Revenue Decline

PepsiCo, Inc. today reported a decline in third quarter net revenue of 5 percent, reflecting a negative 5-percentage-point impact from previously announced structural changes (primarily beverage refranchisings in China and Mexico), and a negative 5-percentage-point impact from foreign exchange translation. Excluding these items, third quarter netrevenue grew 5 percent on an organic basis.

Reported EPS was $1.21 and core EPS was $1.20. Management reaffirmed both ts 2012 core constant currency net revenue and core constant currency EPS guidance and stated that its 2012 strategic initiatives are on track.

“PepsiCo is diligently executing the strategy we set forth at the start of the year, and we remain on track to achieve our full-year targets,” said PepsiCo chairman and CEO Indra Nooyi. “Our disciplined pricing and sustained investment in brand building drove 5 percent organic net revenue growth reflecting 1 percent organic volume growth and 4 percent effective net pricing.

“We remain focused on our five priorities. We will continue to invest aggressively to build our brands, accelerate innovation to drive growth, focus on execution and deliver our productivity agenda while returning cash to shareholders.”

PepsiCo outlined its key operating and marketplace highlights:

·         It achieved 5 percent organic net revenue growth with a good balance between volume growth and price realization.

·         It grew global snacks net revenue on a reported basis. Grew both global snacks and global beverage net revenue on an organic basis.

·         Emerging and developing market net revenue declined 13 percent, primarily due to beverage refranchisings in China and Mexico. On an organic basis, emerging and developing market net revenue grew 11 percent.

·         While reported net revenue in AMEA and Europe declined 21 percent and 6 percent, respectively, organic net revenue grew 10 percent and 7 percent, respectively.

·         PAF saw balanced revenue growth driven by volume growth and effective net price realization.

·         Substantially increased advertising and marketing expense in the quarter, supporting the company’s long-term brand building initiatives.

·         Activated our expanded partnership with the NFL across snacks and beverages with retail programming in 22 of 32 team markets and announced that Pepsi will be the official sponsor of the 2013 Super Bowl halftime show. Doritos will again drive its highly popular Crash the Super Bowl program.


Summary of Third Quarter Financial Performance

·         Organic net revenue growth was 5 percent. Reported net revenue benefited from 1 percentage point of volume growth and 4 percentage points of effective net pricing, offset by negative foreign exchange translation of 5 percentage points. Structural changes, primarily refranchisings in China and Mexico, negatively impacted reported net srevenue performance by 5 percentage points.

·         Reported operating profit declined 4 percent and core operating profit declined 8 percent. Core operating profit performance reflected the impact of increased commodity costs, increased advertising and marketing expense, higher corporate unallocated expenses reflecting increased pension expense and a negative 3 percentage point impact of foreign exchange translation. Core operating profit excluded mark-to-market net gains on commodity hedges, restructuring and certain impairment charges as well as merger and integration charges.

·         Net interest expense was $181 million and included $24 million in mark-to-market gains on investments related to deferred compensation liabilities. There is a corresponding offset to these gains within selling, general and administrative expense resulting in no net benefit to earnings.

·         The company’s reported effective tax rate was 27 percent. The company’s core effective tax rate was 26.3 percent, 90 basis points above the prior year quarter due to an adjustment to international deferred taxes, partially offset by tax benefits generated from an international acquisition.

·         Reported EPS was $1.21 and core EPS was $1.20. Core EPS excludes a $0.04 per share impact of certain restructuring, impairment and integration charges and a $0.05 per share impact from mark-to-market net gains on commodity hedges. Mark-to-market gains and losses are subsequently reflected in core division results when the divisions take delivery of the underlying commodity.

·         Operating cash flow was $5.1 billion year to date. Management operating cash flow (excluding certain items) was $4.9 billion. The company has returned $4.8 billion to shareholders through dividends and share repurchases through the end of the third quarter, and expects to return more than $6 billion to shareholders for the full year 2012.

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