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SMALL BUSINESS
PepsiCo Reports Second-Quarter 2008 Results
Summary of PepsiCo Second-Quarter and Year-to-Date 2008 Results
Quarter Alone Year-to-Date % Growth % Growth Volume (Servings) 5 4.5 Revenue 14 14 Division Operating Profit 7 8 Operating Profit 12 11 Net Income 9 7 Earnings Per Share (EPS) 13 10 EPS ex-Mark-to-Market 11 10
PepsiCo Chairman and Chief Executive Officer,
Summary of Division Reported Q2 and YTD 2008 Results Q2 % Growth Year-to-Date % Growth Div. Div. Operating Operating Volume Revenue Profit Volume Revenue Profit PAF 2 16 13 3 15 10 FLNA 2 8 8 2 8 6 QFNA 2 4 4 1 6 5.5 LAF 4 41 38 5.5 39 33
PAB -1 1 -7 -1 3 -1 PI 10/13* 25 18 10/13* 25 20 UKEU 8/20* 24 19 8/22* 24 19 MEAA 13/10* 25 16 14/10* 27 22
Total PepsiCo 4/5* 14 7 4/4* 14 8
*snacks/beverages
The results at PepsiCo Americas Foods (PAF) reflected solid top- and bottom-line performance across all segments of the business in spite of difficult macroeconomic conditions and rapidly escalating commodity costs.
Frito-Lay North America (FLNA). Our strong brands enabled 2 percent
volume growth even as high-single-digit net price increases were realized
from weight-outs and visual pricing to offset commodity inflation. FLNA
revenue growth of 8 percent was broad based, and operating profit grew 8
percent, driven by net revenue growth and productivity, partially offset
by higher costs for cooking oil, energy and fuel.
Volume growth was driven by double-digit growth in trademark Cheetos,
Ruffles, Quaker Chewy Granola and SunChips. Innovation was the key for
both Cheetos (e.g. Cracker Trax) and SunChips, which introduced new
flavors and was supported by the 'Made From the Sun' marketing campaign.
Weight-outs and a promotional shift to help manage potato supply
constraints led to a high-single-digit volume decrease in trademark Lay's;
but revenues were up high-single-digits. While pricing actions also
contributed to a mid-single-digit volume decrease in trademark Doritos,
revenues were up low-single digits. Single serve packages continued to
provide volume growth.
At Quaker Foods North America (QFNA), volume grew 2 percent, reflecting an
increase in Quaker Oatmeal, grits and Rice-A-Roni. Revenue and operating
profit grew 4 percent.
At the end of the second quarter, flooding in Cedar Rapids, Iowa, shut
down our major Quaker manufacturing facility. The Company expects to be
back to full production levels by mid-August, but we are experiencing
supply disruptions, and many Quaker products have been on allocation. We
expect insurance to cover asset damage and business interruption exposures
in the second half of the year.
At Latin America Foods (LAF) organic revenue and profit increased 10
percent and 21 percent, respectively, despite higher commodity costs.
Revenue growth was driven by broad based pricing actions at our key
businesses of Sabritas and Gamesa. At Sabritas unit volumes grew
mid-single digits; kilo volume declined by low-single digits as expected,
largely due to weight-outs. Also consistent with expectations, Gamesa
experienced double-digit net revenue growth due to favorable pricing
actions; its volume was essentially flat in the quarter lapping
double-digit growth in the prior year. In total, LAF volume grew 4
percent, benefiting from the Lucky brands acquisition in Brazil in the
fourth quarter of 2007.
PepsiCo Americas Beverages (PAB). In
The North American carbonated soft drink (CSD) portfolio gained market
share in measured channels. While showing sequential improvement, CSD volume
declined 2 percent due to category softness. Trademarks Mountain Dew and
Sierra Mist both grew low-single digits, partially offsetting a mid-single
digit decline in trademark Pepsi. Non-carbonated beverages (NCB) volume
declined 4 percent primarily due to a double-digit decline in unflavored
water. Volume growth in the Company's North American energy drinks
portfolio -- led by triple-digit volume growth for Amp Energy and more than 50
percent volume growth for
The Company's Latin America Beverage business (LAB) continues to produce strong top- and bottom-line growth. LAB's broad-based volume growth was driven by mid-single-digit growth in the CSD portfolio and double-digit growth in NCBs.
PepsiCo International (PI) continued to deliver strong performance while lapping over 20 percent revenue growth and over 30 percent profit growth from prior year. PI captured broad-based volume gains in snacks and beverages even as the Company continued to implement pricing actions across its markets.
In the UK/Europe (UKEU) segment, broad-based snack volume growth of 8
percent was driven by double-digit growth in Russia and high-single-digit
growth in Poland. Additionally, Walkers in the United Kingdom grew at a
mid-single-digit rate. The acquisition of the Penelopa nuts and seeds
business in Bulgaria increased total snack volume by 1 point. UKEU
beverage volume grew 20 percent, primarily reflecting the Sandora
acquisition and the expansion of the Pepsi Lipton International joint
venture, which together contributed 17 percentage points to volume growth.
UKEU net revenue increased 24 percent, reflecting volume growth and
effective net pricing in major markets; foreign exchange contributed 11
percentage points and acquisitions 4 percentage points of growth.
Operating profit grew 19 percent driven by net revenue growth and
partially offset by increased commodity costs; foreign exchange added 9
percentage points and acquisitions 4 percentage points to growth.
Middle East/Africa/Asia (MEAA) segment snack volume grew 13 percent, led
by double-digit growth across the Middle East, India, South Africa and
China. In beverages, 10 percent volume growth in the MEAA segment
reflected broad-based gains led primarily by double-digit growth in the
Middle East, China and India. CSD volume grew at a high-single-digit rate
and NCBs grew at a double-digit rate. Net revenue for snacks and
beverages increased 25 percent, reflecting volume growth and effective net
pricing; foreign exchange contributed 6 percentage points to net revenue
growth. Operating profit grew 16 percent as a result of revenue growth,
partially offset by higher commodity costs; foreign exchange contributed 4
percentage points to growth.
Commodity mark-to-market valuation gains contributed to EPS growth.
For the quarter, corporate unallocated expenses decreased
For the Company in total, foreign exchange contributed 4 percentage points to revenue growth and 3 percentage points to operating profit growth. Acquisitions accounted for 3 percentage points to revenue growth and 1 percentage point to operating profit growth.
2008 GUIDANCE
The Company expects full-year 2008 performance of three to five percent
volume growth, low-double-digit net revenue growth (including acquisitions and
foreign exchange) and EPS of at least
Cash provided by operating activities is expected to be approximately
About PepsiCo
PepsiCo is one of the world's largest food and beverage companies, with
2007 annual revenues of more than
Cautionary Statement
This release contains statements concerning PepsiCo's expectations for future performance, including our 2008 guidance. These "forward-looking statements" are based on currently available information, operating plans and projections about future events and trends. They 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 our products, as a result of shifts in consumer preferences or otherwise; our ability to maintain our reputation; our ability to build and sustain our information technology infrastructure, successfully implement our business process transformation initiative or outsource certain functions effectively; fluctuations in the cost and availability of raw materials; our ability to compete effectively; disruption of our supply chain; trade consolidation, the loss of any key customer, or failure to maintain good relationships with our bottling partners; changes in the legal or regulatory environment; our ability to hire or retain key employees; unfavorable economic, environmental or political conditions in the countries where we operate; and market risks arising from changes in commodity prices, foreign exchange rates and interest rates. For additional information on these and other factors that could cause our actual results to materially differ from those set forth herein, please see our filings with the Securities and Exchange Commission, including our 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
Conference Call. At
Reconciliation. 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 under "PepsiCo Financial Press Releases" on the Company's website in the "Investors" section at www.pepsico.com.
Bottler Volume. Volume for products sold by PepsiCo's bottlers is
reported by PepsiCo on a monthly basis, with the second quarter comprising
April and May for
Bottler Case Sales (BCS). BCS represents physical beverage volume shipped to retailers and independent distributors from both PepsiCo and our bottlers.
Concentrate Shipment Equivalents (CSE). CSE represents PepsiCo's physical beverage volume shipments to bottlers, retailers and independent distributors.
"Effective net pricing" refers to the combined impact of mix and price. "Net pricing" refers to the combined impact of list price changes, discounts and allowances. "Pricing" refers to the impact of list price changes.
Mark-to-market gain or loss. The change in market value for financial instruments, such as 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.
Organic revenue and/or profit growth. Growth excluding the impact of foreign exchange and acquisition/divestiture activity.
Division Operating Profit. The aggregation of the operating profit for each of our reportable segments, which excludes the impact of corporate unallocated expenses.
PepsiCo, Inc. and Subsidiaries Condensed Consolidated Statement of Income (in millions except per share amounts, unaudited)
12 Weeks Ended 24 Weeks Ended 6/14/08 6/16/07 6/14/08 6/16/07
Net Revenue $10,945 $9,607 $19,278 $16,957
Costs and Expenses Cost of sales 5,078 4,342 8,912 7,627 Selling, general and administrative expenses 3,664 3,295 6,598 5,930 Amortization of intangible assets 18 11 30 22
Operating Profit 2,185 1,959 3,738 3,378
Bottling Equity Income 168 173 238 247 Interest Expense (74) (54) (132) (96) Interest Income 38 39 39 61
Income before Income Taxes 2,317 2,117 3,883 3,590
Provision for Income Taxes 618 560 1,036 937
Net Income $1,699 $1,557 $2,847 $2,653
Diluted Net Income Per Common Share $1.05 $0.94 $1.76 $1.59 Average Shares Outstanding 1,612 1,665 1,622 1,669
PepsiCo, Inc. and Subsidiaries Supplemental Financial Information (in millions, unaudited)
12 Weeks Ended 24 Weeks Ended 6/14/08 6/16/07 6/14/08 6/16/07 Net Revenue
Frito-Lay North America $2,950 $2,723 $5,680 $5,276 Quaker Foods North America 406 390 901 853 Latin America Foods 1,523 1,079 2,494 1,789 PepsiCo Americas Foods 4,879 4,192 9,075 7,918
PepsiCo Americas Beverages 2,880 2,855 5,240 5,075
United Kingdom & Europe 1,727 1,396 2,638 2,136 Middle East, Africa & Asia 1,459 1,164 2,325 1,828 PepsiCo International 3,186 2,560 4,963 3,964
Total Net Revenue $10,945 $9,607 $19,278 $16,957
Operating Profit
Frito-Lay North America $735 $682 $1,368 $1,292 Quaker Foods North America 122 117 288 273 Latin America Foods 254 183 421 316 PepsiCo Americas Foods 1,111 982 2,077 1,881
PepsiCo Americas Beverages 681 729 1,185 1,202
United Kingdom & Europe 262 220 364 306 Middle East, Africa & Asia 233 201 372 306 PepsiCo International 495 421 736 612
Division Operating Profit 2,287 2,132 3,998 3,695
Corporate (102) (173) (260) (317)
Total Operating Profit $2,185 $1,959 $3,738 $3,378
PepsiCo, Inc. and Subsidiaries Condensed Consolidated Statement of Cash Flows (in millions, unaudited)
24 Weeks Ended 6/14/08 6/16/07 Operating Activities Net income $2,847 $2,653 Depreciation and amortization 678 608 Stock-based compensation expense 112 123 Excess tax benefits from share-based payment arrangements (65) (86) Pension and retiree medical plan contributions (86) (116) Pension and retiree medical plan expenses 211 240 Bottling equity income, net of dividends (196) (207) Deferred income taxes and other tax charges and credits 222 64 Change in accounts and notes receivable (1,102) (852) Change in inventories (602) (526) Change in prepaid expenses and other current assets (219) (69) Change in accounts payable and other current liabilities 125 (28) Change in income taxes payable 427 369 Other, net (159) (155) Net Cash Provided by Operating Activities 2,193 2,018
Investing Activities Capital spending (896) (743) Sales of property, plant and equipment 65 15 Acquisitions and investments in noncontrolled affiliates (262) (853) Cash proceeds from sale of The Pepsi Bottling Group (PBG) and PepsiAmericas, Inc. (PAS) stock 200 192 Short-term investments, net 1,255 326 Net Cash Provided by/(Used for) Investing Activities 362 (1,063)
Financing Activities Proceeds from issuances of long-term debt 1,733 1,005 Payments of long-term debt (437) (534) Short-term borrowings, net 705 266 Cash dividends paid (1,209) (989) Share repurchases - common (2,904) (1,964) Share repurchases - preferred (3) (4) Proceeds from exercises of stock options 339 485 Excess tax benefits from share-based payment arrangements 65 86 Net Cash Used for Financing Activities (1,711) (1,649)
Effect of Exchange Rate Changes on Cash and Cash 14 41 Equivalents Net Increase/(Decrease) in Cash and Cash Equivalents 858 (653) Cash and Cash Equivalents - Beginning of year 910 1,651 Cash and Cash Equivalents - End of period $1,768 $998
PepsiCo, Inc. and Subsidiaries Condensed Consolidated Balance Sheet (in millions)
6/14/08 12/29/07 Assets (unaudited) Current Assets Cash and cash equivalents $1,768 $910 Short-term investments 305 1,571
Accounts and notes receivable, net 5,617 4,389
Inventories Raw materials 1,275 1,056 Work-in-process 331 157 Finished goods 1,329 1,077 2,935 2,290
Prepaid expenses and other current assets 1,026 991 Total Current Assets 11,651 10,151
Property, plant and equipment, net 11,600 11,228 Amortizable intangible assets, net 847 796
Goodwill 5,511 5,169 Other nonamortizable intangible assets 1,375 1,248 Nonamortizable Intangible Assets 6,886 6,417
Investments in noncontrolled affiliates 4,519 4,354 Other assets 1,276 1,682 Total Assets $36,779 $34,628
Liabilities and Shareholders' Equity Current Liabilities Accounts payable and other current liabilities $7,986 $7,602 Income taxes payable 353 151 Total Current Liabilities 8,339 7,753
Long-term debt obligations 6,053 4,203 Other liabilities 4,982 4,792 Deferred income taxes 752 646 Total Liabilities 20,126 17,394
Commitments and Contingencies
Preferred stock, no par value 41 41 Repurchased preferred stock (135) (132)
Common Shareholders' Equity Common stock 30 30 Capital in excess of par value 345 450 Retained earnings 29,669 28,184 Accumulated other comprehensive loss (473) (952) 29,571 27,712 Less: Repurchased common stock (12,824) (10,387) Total Common Shareholders' Equity 16,747 17,325 Total Liabilities and Shareholders' Equity $36,779 $34,628
PepsiCo, Inc. and Subsidiaries Supplemental Share and Stock-Based Compensation Data (in millions, except dollar amounts, and unaudited)
12 Weeks Ended 24 Weeks Ended 6/14/08 6/16/07 6/14/08 6/16/07
Beginning Net Shares Outstanding 1,591 1,632 1,605 1,639 Options Exercised/Restricted Stock Units Converted 3 6 10 14 Shares Repurchased (22) (17) (43) (32) Ending Net Shares Outstanding 1,572 1,621 1,572 1,621
Weighted Average Basic 1,582 1,628 1,591 1,632 Dilutive Securities: Options 25 31 27 31 Restricted Stock Units 4 4 3 4 ESOP Convertible Preferred Stock/Other 1 2 1 2 Weighted Average Diluted 1,612 1,665 1,622 1,669
Average Share Price for the Period $69.07 $66.32 $70.27 $65.15 Growth Versus Prior Year 4% 13% 8% 11%
Options Outstanding 111 125 113 129 Options in the Money 111 125 113 123 Dilutive Shares from Options 25 31 27 31 Dilutive Shares from Options as a % of Options in 23% 25% 24% 25% the Money
Average Exercise Price of Options in the Money $49.98 $46.49 $49.94 $45.47
Restricted Stock Units Outstanding 7 8 7 8 Dilutive Shares from Restricted Stock Units 4 4 3 4
Average Intrinsic Value of Restricted Stock Units $63.04 $58.46 $63.04 $58.44 Outstanding*
* Weighted-average intrinsic value at grant date
Reconciliation of GAAP and Non-GAAP Information (unaudited)
In the 12 and 24 weeks ended
The financial measures listed below are not measures defined by generally accepted accounting principles (GAAP). However, we believe investors should consider these measures as they are more indicative of our ongoing performance and how management evaluates our operational results and trends. Specifically, investors should consider the following with respect to our results:
- Our 2008 and 2007 division operating profit;
- Our 2008 division operating profit growth;
- Our 2008 Latin America Foods (LAF) revenue growth and operating profit
growth without the impact of M&A activity and foreign currency; and
- Our 2008 diluted EPS and EPS growth excluding the impact of mark-to-
market net gains on commodity hedges recognized in corporate unallocated
expenses.
Operating Profit Growth Reconciliation
12 Weeks 24 Weeks
Ended Ended
6/14/08 6/14/08
Division Operating Profit Growth 7% 8%
Impact of Corporate Unallocated 4 2.5
Total Operating Profit Growth 12%* 11%*
* Does not sum due to rounding.
LAF Revenue Growth and Operating Profit Growth Reconciliation
12 Weeks
Ended
6/14/08
Revenue Growth 41%
Impact of M&A Activity (23)
Impact of Foreign Currency (8)
Revenue Growth Excluding above Items 10%
Operating Profit Growth 38%
Impact of M&A Activity (10)
Impact of Foreign Currency (7)
Operating Profit Growth Excluding above Items 21%
Diluted EPS Reconciliation
12 Weeks 12 Weeks
Ended Ended
6/14/08 6/16/07 Growth
Reported Diluted EPS $1.05 $0.94 13%
Mark-to-Market Net Gains on Commodity
Hedges (0.02) -
Diluted EPS Excluding above Item $1.03 $0.93* 11%
* Does not sum due to rounding.
24 Weeks 24 Weeks
Ended Ended
6/14/08 6/16/07 Growth
Reported Diluted EPS $1.76 $1.59 10%
Mark-to-Market Net Gains on Commodity
Hedges (0.02) (0.01)
Diluted EPS Excluding above Item $1.73* $1.58 10%
* Does not sum due to rounding.
SOURCE PepsiCo, Inc.
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