US: PepsiCo H1 earnings jump as sales edge up
- H1 net earnings up 18%
- H1 net sales up 2%
- Reaffirms FY EPS guidance
Organic food revenue growth outpaces that of drinks
PepsiCo has booked an 18% increase in first-half net income after a slight increase in sales and lower costs.
The company said today (24 July) net profit rose to US$3.1bn in the six months to 15 July, up from $2.6bn in the comparable period of last year. The bottom line was boosted by lower income tax costs, improved margins and lower amortisation expenses. Operating profit was up 10% to $4.5bn.
The US food and drinks group revealed revenue in the half increased 2%, climbing to $16.8bn.
The company has recently come under pressure from activist investor Nelson Peltz, who has argued the firm should divide its drinks and snack business. According to Peltz, the diverse business models of PepsiCo's low-growth drinks arm and high-growth food operations are at odds, putting pressure on how resources are allocated. Peltz has argued the food side of the business could then be merged with Mondelez International to create a global snacks powerhouse.
Management has resisted these calls. In the second quarter, PepsiCo revealed its organic revenue growth rose 3% in food and just 1.5% in drinks. However, the group was quick to emphasise the value that it is delivering to shareholders.
"PepsiCo delivered another quarter of mid-single-digit organic revenue growth, driven by our balanced food and beverage product portfolio and global geographic footprint," CEO Indra Nooyi said.
PepsiCo reaffirmed that it expects to deliver core constant currency EPS growth of 7% during fiscal 2013.
Click here to view our analysis on the spat between Peltz and PepsiCo, or check back later to hear what management had to say during today's conference call to discuss the result.
PepsiCo Reports Second Quarter 2013 Results
-- Core(1) EPS $1.31, up 17 percent. Reported EPS $1.28, an increase of 36 percent
-- Organic(1) revenue grew 4.2 percent. Reported net revenue increased 2 percent reflecting the impacts of foreign currency translation and structural changes
-- Core gross margin expanded 120 basis points, and reported gross margin increased 110 basis points
-- Company expects to return approximately $6.4 billion to shareholders through dividends and share repurchases in 2013
-- Company reaffirms 7 percent core constant currency(1) EPS growth guidance for 2013
PURCHASE, N.Y., July 24, 2013 /PRNewswire/ -- PepsiCo, Inc. (NYSE: PEP) today reported core earnings per share of $1.31 for the second quarter, an increase of 17 percent on organic revenue growth of 4.2 percent.
"We're pleased with our performance in the second quarter and for the first half of 2013. PepsiCo delivered another quarter of mid-single-digit organic revenue growth, driven by our balanced food and beverage product portfolio and global geographic footprint. We continue to invest in advertising and marketing, innovation, and other marketplace initiatives to sustain our organic revenue growth and we are driving a robust productivity agenda that serves as a funding source for these investments," said Chairman and CEO Indra Nooyi.
"Importantly, we maintained disciplined, balanced pricing that, together with our productivity initiatives, translated to healthy margin improvement. In the second quarter, we increased both gross margins and operating margins by more than 100 basis points.
"Our results in the first half give us even greater confidence in achieving our financial goals for the full year. We remain focused on driving marketplace execution, maintaining discipline in our capital allocation and delivering on our financial targets 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 management operating cash flow.
Operating and Marketplace Highlights
-- Achieved 4.2 percent organic revenue growth.
-- PepsiCo Americas Foods organic revenue grew 6 percent in the quarter
driven by mid-single-digit organic revenue growth at Frito-Lay North
America and double-digit organic revenue growth in Latin America Foods.
Reported net revenue increased 5 percent in the quarter driven by
mid-single-digit net revenue growth at Frito-Lay North America and
high-single-digit net revenue growth in Latin America Foods.
-- PepsiCo Americas Beverages core constant currency operating profit grew
4 percent in the quarter reflecting 3 percentage points of effective net
pricing and productivity gains. Reported operating profit was up 5
-- In the U.S., the company's largest market, held value market share in
salty snacks and improved both volume and value market share performance
sequentially in liquid refreshment beverages.
-- AMEA organic revenue grew 14 percent in the quarter driven by organic
volume growth in both snacks and beverages. Reported net revenue in AMEA
rose 6 percent, reflecting the impact of structural changes and foreign
-- On an organic basis, developing and emerging market revenue grew 11
percent in the quarter. The refranchising of our beverage businesses in
Vietnam and China and unfavorable foreign exchange impacted developing
and emerging markets net revenue growth by 5 percentage points. On a
reported basis, emerging and developing market net revenue grew 6
percent in the quarter.
-- Core gross margin expanded 120 basis points.
-- Core operating margin expanded 120 basis points, including a 13 percent
increase in advertising and marketing expense. Reported operating margin
expanded 260 basis points.
-- On track to deliver targeted $900 million of productivity savings during
2013 and $3 billion in productivity savings in 2012 through 2014.
-- Management operating cash flow (excluding certain items) was $2.3
billion year to date. Cash flow from operations was $3 billion year to
-- Net capital spending was 4.0 percent of net sales over the past four
quarters, an improvement of 40 basis points over the comparable prior
-- On track to return a total of $6.4 billion to shareholders in 2013
through approximately $3.4 billion in dividends and approximately $3.0
billion in share repurchases.
Summary of Second Quarter Financial Performance
-- Organic revenue grew 4.2 percent and reported net revenue grew 2
percent. Structural changes, principally the refranchising of the
company's beverage operations in Vietnam and China, negatively impacted
reported net revenue performance by nearly 1 percentage point and
foreign exchange translation had a 1.5-percentage-point unfavorable
impact in the quarter.
-- Core constant currency operating profit increased 11 percent reflecting
solid revenue growth, productivity gains, and a $137 million gain
related to refranchising the company's bottling operations in Vietnam,
partially offset by increased advertising and marketing expense and $46
million of incremental investments. The gain, net of the $46 million
incremental investments, contributed 3 percentage points to core
constant currency operating profit growth. Reported operating profit
increased 21 percent and included the net impact of mark-to-market
losses on commodity hedges, and certain restructuring and integration
costs in both 2013 and 2012. The Vietnam gain, net of incremental
investments, contributed 4 percentage points to reported operating
-- The company's core effective tax rate was 24.5 percent, below the prior
year quarter primarily due to favorable resolution of certain tax
matters in the quarter. The company's reported tax rate was 24.4
percent, below the prior year quarter primarily due to favorable
resolution of certain tax matters in the quarter and lapping the prior
year tax impact of the China refranchising transaction with Tingyi.
-- Core EPS was $1.31 and reported EPS was $1.28. Core EPS includes a $0.09
per share gain related to refranchising the company's bottling
operations in Vietnam, partially offset by a $0.02 impact from
incremental investments. Core EPS excludes a net impact of $0.02 per
share related to mark-to-market losses on commodity hedges, and a $0.01
impact from restructuring and integration charges. Mark-to-market gains
and losses on commodity hedges are subsequently reflected in core
division results when the divisions recognize the cost of the underlying
commodity in net income.
Original source: PepsiCo
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