PepsiCo reports 7.6 pct rise in quarterly profit

PepsiCo reports 7.6 pct rise in quarterly profit

PepsiCo reports 7.6 pct rise in quarterly profit

The FINANCIAL -- PepsiCo, Inc. on October 4 reported results for the third quarter 2017.

“Overall, our businesses performed well in the third quarter in what continues to be a challenging environment,” said Chairman and CEO Indra Nooyi. “Each of our operating sectors delivered results in line with or ahead of our expectations, with the exception of North America Beverages (NAB) where revenues declined following two consecutive years of very strong third-quarter growth. Despite the challenges in our NAB business, the PepsiCo portfolio overall generated revenue, operating profit and earnings per share growth. Although we have moderated our full-year organic revenue growth outlook, we are now on track to exceed the full-year earnings per share target we set at the beginning of the year.”

Reported net revenue increased 1.3 percent. Foreign exchange translation had a 1- percentage-point unfavorable impact on reported net revenue. Organic revenue, which excludes the impacts of foreign exchange translation and structural changes, grew 1.7 percent, according to PepsiCo.

•Reported gross margin expanded 10 basis points and core gross margin contracted 15 basis points. Reported operating margin expanded 80 basis points and core operating margin expanded 30 basis points.

•Reported operating profit increased 6 percent and core constant currency operating profit increased 4 percent. Commodity mark-to-market adjustments and higher prior-year restructuring charges increased reported operating profit growth by 2 percentage points and 1 percentage point, respectively. Foreign exchange translation reduced reported operating profit growth by 1 percentage point.

•The reported effective tax rate was 22.3 percent in the third quarter of 2017 and 23.0 percent in the third quarter of 2016. The core effective tax rate was 22.2 percent in the third quarter of 2017 and 23.3 percent in the third quarter of 2016. The third quarter 2017 reported and core tax rates reflect the positive impact of a change in the accounting for certain aspects of share-based payments to employees.

•Reported EPS was $1.49, a 9 percent increase from the prior-year period. Foreign exchange translation reduced reported EPS growth by 1 percentage point.

•Core EPS was $1.48, an increase of 6 percent from the prior-year period. Excluding the impact of foreign exchange translation, core constant currency EPS increased 7 percent (see schedule A-10 for a reconciliation to reported EPS, the comparable GAAP measure).

•Net cash provided by operating activities was $3.8 billion.

Frito-Lay North America (FLNA)

Positively impacted by productivity gains and prior-year incremental investments, partially offset by operating cost inflation and higher raw material costs.

Quaker Foods North America (QFNA)

Positively impacted by productivity gains and prior-year incremental investments, partially offset by operating cost inflation.

North America Beverages (NAB)

Negatively impacted by operating cost inflation, substantially offset by productivity gains. In addition, a gain associated with an asset sale contributed 2 percentage points to operating profit performance.

Latin America

Positively impacted by productivity gains, a favorable promotional spending accrual adjustment and prior-year incremental investments. These impacts were partially offset by operating cost inflation and higher raw material costs.

Europe Sub-Saharan Africa (ESSA)

Positively impacted by productivity gains and prior-year incremental investments. These impacts were partially offset by operating cost inflation, higher advertising and marketing expenses and higher raw material costs.

Asia, Middle East and North Africa (AMENA)

Positively impacted by productivity gains and lower advertising and marketing expenses. These impacts were partially offset by higher raw material costs (in local currency terms, driven by a weak Egyptian Pound) and operating cost inflation. Unfavorable foreign exchange translation reduced operating profit growth by 13 percentage points.

Reported net revenue increased 1.7 percent. Foreign exchange translation had a 1- percentage-point unfavorable impact on reported net revenue. Organic revenue, which excludes the impacts of foreign exchange translation and structural changes, grew 2.3 percent.

•Reported gross margin contracted 30 basis points and core gross margin contracted 20 basis points. Reported operating margin expanded 90 basis points and core operating margin expanded 20 basis points. Reported operating margin expansion reflects the impact of the prior-year charge related to the transaction with Tingyi. Reported and core operating margin expansion reflect a gain associated with the second-quarter sale of our minority stake in Britvic plc (the Britvic gain).

•Reported operating profit increased 7 percent and core constant currency operating profit increased 4 percent. The impact of the charge related to the transaction with Tingyi had a 5- percentage-point favorable impact on reported operating profit growth. Commodity mark-to- market adjustments reduced reported operating profit growth by 2 percentage points. Higher prior-year restructuring charges increased reported operating profit growth by 0.5 percentage points. Foreign exchange translation reduced reported operating profit growth by 1 percentage point. The Britvic gain had a 1-percentage-point favorable impact on reported and core operating profit growth.

•The reported effective tax rate was 22.9 percent year-to-date 2017 and 26.2 percent for the same period in 2016. The year-to-date reported 2016 tax rate was impacted by the charge related to the transaction with Tingyi, which had no corresponding tax benefit. The core effective tax rate was 22.8 percent year-to-date 2017 and 24.7 percent for the same period in 2016. The year-to-date 2017 reported and core tax rates reflect the positive impact of a change in the accounting for certain aspects of share-based payments to employees.

Reported EPS was $3.87, a 14 percent increase from the prior-year period, primarily reflecting the impact of the year-ago charge related to the transaction with Tingyi. Foreign exchange translation reduced reported EPS growth by 1.5 percentage points.

•Core EPS was $3.92, an increase of 8 percent. Excluding the impact of foreign exchange translation, core constant currency EPS increased 9 percent (see schedule A-10 for a reconciliation to reported EPS, the comparable GAAP measure).

•The Britvic gain had a 6 cent favorable impact on reported and core EPS.

•Net cash provided by operating activities was $6.1 billion.

Frito-Lay North America (FLNA)

Positively impacted by productivity gains, partially offset by operating cost inflation and higher raw material costs.

Quaker Foods North America (QFNA)

Positively impacted by productivity gains, favorable settlements of promotional spending accruals and lower raw material costs, partially offset by operating cost inflation.

North America Beverages (NAB)

Negatively impacted by operating cost inflation partially offset by productivity gains and favorable settlements of promotional spending accruals.

Latin America

Negatively impacted by operating cost inflation, higher advertising and marketing expenses, and higher raw material costs. Unfavorable foreign exchange and restructuring and impairment charges each negatively impacted operating profit performance by 3 percentage points. These impacts were partially offset by productivity gains.

Europe Sub-Saharan Africa (ESSA)

Positively impacted by productivity gains and prior-year incremental investments. Additionally, the Britvic gain and higher prior-year restructuring and impairment charges contributed 11 percentage points and 4 percentage points to operating profit growth, respectively. These impacts were partially offset by operating cost inflation, higher advertising and marketing expenses and higher raw material costs.

Asia, Middle East and North Africa (AMENA)

Positively impacted by a year-ago charge related to the transaction with Tingyi and productivity gains. These impacts were partially offset by higher raw material costs (in local currency terms, driven by a weak Egyptian Pound) and operating cost inflation. Unfavorable foreign exchange translation reduced operating profit growth by 7 percentage points.

2017 Guidance and Outlook

The Company provides guidance on a non-GAAP basis as the Company cannot predict certain elements which are included in reported GAAP results, including the impact of foreign exchange and commodity mark-to-market adjustments.

The Company now expects full-year organic revenue growth to approximate our year-to-date growth rate (previously at least 3 percent). Based on current market consensus rates, foreign exchange translation is now expected to negatively impact reported net revenue growth by approximately 1 percentage point (previously 2 percentage points). The 53rd week in 2016 is expected to negatively impact reported net revenue growth by 1 percentage point.

Based on current market consensus rates, foreign exchange is now expected to negatively impact core EPS by approximately 1 percentage point (previously 2 percentage points). In addition, the Company intends to reinvest the Britvic gain in the balance of the year.

The Company continues to expect:

•Approximately $10 billion in cash flow from operating activities and approximately $7 billion in free cash flow (excluding certain items);
•Net capital spending of approximately $3 billion;
•Dividend payments of approximately $4.5 billion; and
•Share repurchases of approximately $2 billion.