Business News
PepsiCo Delivers Solid First-Quarter Results; Reaffirms Full-Year Guidance
Monday 20. April 2009 - Delivers Reported Earnings Per Share (EPS) of $0.72; Core* EPS of $0.71
– Division Operating Results Drive Constant Currency* Core EPS Growth of 8 Percent
– Reaffirms Full-Year 2009 Guidance of Mid- to High-Single-Digit Constant Currency Net Revenue and Core EPS Growth
PepsiCo, Inc. (NYSE: PEP) today reported first-quarter 2009 results that reflected solid top- and bottom-line performance on a constant currency basis. The company delivered 6 percent constant currency net revenue growth. The company’s first-quarter constant currency core EPS grew 8 percent, reflecting strong net revenue management, product innovation and cost discipline. Reported EPS grew 3 percent and reported net revenue declined 1 percent.
Indra Nooyi, PepsiCo Chairman and Chief Executive Officer, said: “I am pleased with PepsiCo’s overall performance in the quarter. Our portfolio breadth, geographic reach and operating agility enabled us to deliver strong performance in a challenging global macroeconomic environment. Worldwide, our teams adapted their operating models – from refreshing our beverage lineup, to devising new value initiatives, to enhancing revenue management and expanding Power of One initiatives.”
Nooyi continued, “In addition to meeting our near-term financial commitments, we are focused on delivering growth over the long term by continuing our investments in brand building, innovation and supply-chain transformation. In spite of the economic slowdown, all of our businesses are performing at or above expectations, which gives me confidence in reaffirming our full-year guidance.”
*Please refer to the Glossary for definitions of constant currency and core. Core results and constant currency core results are non-GAAP financial measures that exclude certain items. Please refer to “Reconciliation of GAAP and Non-GAAP information” in the attached exhibits for a description of these items.
Summary of First-Quarter 2009 Division Results
% Growth
Constant Currency* % Growth
—————— —————————
Core** Core** Reported
Division Reported Division Division
Net Operating Net Operating Operating
Volume Revenue Profit Revenue Profit Profit
PAF -2 10 14 4 8 7
FLNA -1 12 12 10 10 10
QFNA -1 flat 7 -2 6 5
LAF -5.5 11 27 -11 1 -1
PAB -6 -9 -10 -12 -13 -16
PI 4/9*** 17 11 3 -2 -4
Europe 1/7 17 10 -4 -16 -18
AMEA 8/10 18 12 11 11 8
Total Divisions -1/-1*** 6 6 -1 flat -1
* Please refer to the Glossary for definitions of “constant currency”
and “core.”
** The above core results and constant currency core results are
non-GAAP financial measures that exclude certain restructuring
actions associated with the company’s Productivity for Growth
initiative. For more information about our core results, see
“Reconciliation of GAAP and Non-GAAP Information” in the attached
exhibits.
*** Snacks/beverages
Division Operating Results Summary:
The following discussion of division operating results reflects constant currency net revenue and constant currency core operating profit results.
On a constant currency basis, PepsiCo Americas Foods (PAF) delivered 10 percent net revenue and 14 percent core operating profit growth in the first quarter, despite difficult year-over-year commodity cost comparisons.
On a constant currency basis, Frito-Lay North America (FLNA) had excellent results with 12 percent growth in both net revenue and core operating profit, driven by net revenue management and cost discipline. Volume was down less than 1 percent, primarily due to weight outs to cover commodity cost inflation. Frito-Lay U.S. retail unit sales grew low-single-digits, reflecting strong in-store programming, consumer promotions and marketing campaigns.
As part of its continuing commitment to deliver value to consumers, FLNA recently began to add 20 percent more product into its take-home sized Doritos, Tostitos, Cheetos and Fritos products, without increasing the price.
On a constant currency basis, Quaker Foods North America (QFNA) net revenue was flat and core operating profit grew 7 percent. Core operating profit growth included the final settlement of the insurance claim related to the Cedar Rapids flood that occurred in the second quarter of 2008, which contributed 10 percentage points to growth. Quaker recently launched a new marketing campaign that aligns its entire product portfolio under the optimistic and encouraging umbrella tag line, “Go humans go.” The campaign will focus on communicating the health and wellness benefits of Quaker’s offerings.
On a constant currency basis, Latin America Foods (LAF) net revenue grew 11 percent and core operating profit grew 27 percent. Net revenue and core operating profit growth resulted from pricing actions, including weight outs, and disciplined cost control. Value-oriented promotions, such as Sabritas’ “Money in the Bag” campaign in Mexico, supported pricing actions to offset both commodity inflation and transaction foreign exchange headwinds.
Volume declined 5.5 percent in the quarter as a result of fewer trading days, a shift in the Easter holiday to the second quarter, and pricing actions to cover commodity inflation.
PepsiCo Americas Beverages (PAB) performed in-line with our expectations in the quarter as it completed the restaging of its North America Beverage (NAB) portfolio.
Volume declined 6 percent, partially attributable to the Easter holiday shift to the second quarter as well as challenging overlaps from the successful launch of G2 and Gatorade Tiger in the year-ago period. In North America, volume performance was impacted by a mid-single-digit decline in carbonated soft drinks (CSD) and a double-digit decline in sports drinks. On a constant currency basis, net revenue declined 9 percent and core operating profit was down 10 percent.
NAB’s CSD portfolio showed encouraging momentum in the quarter. Brand Mtn Dew continued to deliver strong performance, growing volume and market share. Brand Pepsi’s “Refresh Everything” marketing campaign was fully launched during the Super Bowl with strong consumer reception.
PepsiCo is continuing to feature innovation across its non-carbonated beverage (NCB) portfolio. G2 grew mid-single-digits in the quarter and was named the most successful 2008 product innovation in the food and beverage category by IRI. In the enhanced water segment, the company re-launched Propel at the end of the first quarter, adding two new sub-lines: Propel Body and Propel Mind, both of which deliver nutritional benefits. SoBe Lifewater and Tropicana’s Trop50 – beverages featuring the all-natural, zero-calorie sweetener PureVia(TM) – exceeded expectations. And in the energy drink segment, Amp continued to deliver strong growth. In the second quarter, NAB launched a reformulated version of Gatorade Tiger, featuring Theanine, an ingredient which has been shown to increase mental focus during physical activity when combined with carbohydrates and advanced hydration. The company expects that Gatorade will see improved momentum toward the end of the second quarter.
On a constant currency basis, PepsiCo International (PI) delivered double-digit net revenue and core operating profit growth, despite challenging global economic conditions.
On a constant currency basis, PepsiCo Europe’s net revenue and core operating profit were both up double-digits, reflecting strategic net revenue management initiatives, cost discipline across all markets and the impact of acquisitions.
Europe division snacks volume grew 1 percent, including 3 percentage points of growth from the Marbo acquisition. Volume growth was partially offset by the adverse impact of planned weight outs in response to higher input costs and 2 fewer trading days in key markets. Russia snacks achieved low-double-digit volume growth as a result of improved distribution and the strength of locally relevant brand extensions and product innovation, such as Red Caviar flavored Lay’s potato chips. In the United Kingdom, Walkers grew value share across all channels through pricing discipline and the success of its “Do Us a Flavour” promotion.
Europe division beverage volume grew 7 percent in the first quarter. Strong volume growth primarily reflects the Lebedyansky acquisition in Russia, which contributed 14 percentage points to division growth and continues to gain share while maintaining top-line growth. Volume growth in the United Kingdom and Germany was more than offset by declines in the Ukraine and Russia.
In the first quarter, on a constant currency basis, Europe division’s net revenue grew 17 percent and core operating profit grew 10 percent. Acquisitions contributed 13 percentage points to net revenue growth and 8 percentage points to operating profit growth.
The Asia/Middle East/Africa (AMEA) division grew snack volume by 8 percent in the first quarter, building on strong performance in the year-ago period. Volume growth was driven by low-double-digit growth in emerging markets, such as the Middle East, and high-single-digit growth in India and China. These gains were partially offset by a high-single-digit decline in South Africa.
AMEA division beverage volume grew 10 percent. Volume growth was broad-based across geographies and categories, reflecting double-digit growth in the Middle East and India, as well as high-single-digit growth in China.
On a constant currency basis, AMEA first-quarter net revenue growth was 18 percent and core operating profit improved 12 percent. Strong net revenue management drove the top line, while volume growth and cost discipline drove net operating profit. The net impact of acquisitions and divestitures contributed 2.5 percentage points to net revenue growth and decreased core operating profit by 5 percentage points.
Corporate Unallocated
For the quarter, net mark-to-market gains on commodity hedges were $62 million compared with a $4 million loss in the comparable period a year ago. Other corporate unallocated expenses increased $14 million. Net interest expense increased $41 million due to increased borrowings associated with acquisitions, a discretionary pension contribution and share repurchases in the prior year.
PepsiCo’s reported tax rate was 24.7 percent for the first quarter. Excluding the impact of items affecting comparability, PepsiCo’s core tax rate was 24.2 percent for the first quarter. The company expects its full-year reported and core tax rates to be about 27 percent.
Productivity for Growth
The company incurred a pre-tax charge of $25 million in the first quarter of 2009. As previously announced, the company expects the initiatives will be completed in the second quarter of 2009.
Cash Flow
PepsiCo used $266 million in cash for operating activities, reflecting a discretionary $1 billion contribution to its pension fund and $124 million cash payments associated with the Productivity for Growth program. Excluding these items, cash from operating activities was $858 million compared to $520 million in 2008.
2009 Guidance
The company is reaffirming its full-year 2009 guidance for both net revenue and core EPS of mid- to high-single-digit constant currency growth. The company estimates that foreign exchange, at current spot rates, would have a high-single-digit percentage point adverse impact to our full-year constant currency core EPS. The company’s 2008 core EPS was $3.68.
Excluding the impact of its $1 billion discretionary pension contribution (approximately $640 million after-tax cash impact), cash from operating activities is expected to be about $7 billion. The company expects to invest up to $2.1 billion in net capital spending.
The company’s 2009 guidance does not include the impact of the proposed transactions with The Pepsi Bottling Group, Inc. and PepsiAmericas, Inc., which were also announced today.