Lays maker PepsiCo upbeat on 2015 sales, earnings outlook

Lay's maker PepsiCo upbeat on 2015 sales, earnings outlook

PepsiCo today (11 February) booked a fall in annual earnings as foreign exchange and an increase in some expenses hit the bottom line.

Shares were nevertheless up in pre-market trade as the group's fourth-quarter numbers beat analyst forecasts.

The US food and beverage giant said net income dropped 3% to $6.79bn. The result reflected increased provisions for income taxes and a drop in interest and other income.

Operating profit was down 1% to US$9.58bn as higher SG&A expenses offset a slight decline in the cost of goods sold.

Full-year reported sales remained flat at US$66.68bn. On an organic basis, stripping out currency fluctuations, revenue increased 4%. Growth was particularly strong in emerging and developing markets, where sales were up 10% year-on-year.

PepsiCo shares had increased 2.1% by 7.10am (ET) after the company's fourth-quarter numbers beat analyst expectations and the group announced a $12bn share repurchase programme.

Fourth-quarter EPS totalled $1.12, ahead of consensus expectations of $1.08 a share.

Looking to 2015, the company expects 7% core constant currency EPS growth, consistent with its long-term target of high-single-digit core constant currency EPS growth. Organic revenue in fiscal 2015 is expected to grow mid-single digits versus 2014.

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PepsiCo Reports Fourth Quarter and Full Year 2014 Results

 2/11/2015

PURCHASE, N.Y.Feb. 11, 2015 /PRNewswire/ -- PepsiCo, Inc. (NYSE: PEP) today reported core earnings per share of $1.12 for the fourth quarter of 2014 and $4.63 for the full year, on organic revenue growth of 5 percent for the quarter and 4 percent for the full year.

"We are pleased to report that we met or exceeded each of our full-year 2014 financial targets. Our results are a reflection of our diverse global footprint, the strength of our integrated food and beverage product portfolio, successful innovation and exceptional marketplace execution," said Chairman and CEO Indra Nooyi.

"As we look ahead to 2015, we expect to again deliver results consistent with our long-term financial objectives, despite the anticipated challenging and volatile global macro environment. Further, returning cash to shareholders remains a top priority, and we plan to return approximately $8.5 to $9 billion to shareholders through both higher dividends and share repurchases."

1Please refer to the Glossary for the definitions of Non-GAAP financial measures including core, constant currency, organic and free cash flow.

Summary Fourth Quarter 2014 Performance (Percent Growth)







Reported

 

Core Constant

Currencya

 

 

Organicb

Volume




Snacks

2


2

Beverages

2


1

Net Revenue

(1)


5

Operating Profitc

(15)

7


EPS

(23)

14


 















 

 

 

Organic

Volumeb

Net Revenue

 

 

 

Operating

Profitc

 

 

 

Organic

Revenueb

Core

Constant

Currency

Operating

Profita

FLNA

2

3

5.5

3.5

6

QFNA

--

(2)

3

--

8

LAF

(2)

(0.5)

(20)

11

2

PAB

1

1

4

3

11

Europe

3/3d

(10)

(6)

6

(5)

AMEA

8/1.5d

4

(7)

7

(6)

Total Divisions

2/1d

(1)

(1)

5

5

Total PepsiCo

2/1d

(1)

(15)

5

7

 

Core constant currency results are non-GAAP financial measures that exclude certain items affecting comparability and foreign exchange translation. For more information about our core constant currency results, see "Reconciliation of GAAP and Non-GAAP Information" in the attached exhibits. Please refer to the Glossary for definitions of "Core" and "Constant Currency."

Organic results are non-GAAP financial measures that adjust for impacts of acquisitions, divestitures and other structural changes and foreign exchange translation, as applicable. For more information about our organic results, see "Reconciliation of GAAP and Non-GAAP Information" in the attached exhibits. Please refer to the Glossary for the definition of "Organic."

The reported operating profit performance was impacted by certain items excluded from our core results in both 2014 and 2013. See "Reconciliation of GAAP and Non-GAAP Information" in the attached exhibits for more information about these items. Please refer to the Glossary for the definition of "Core."

d Snacks/Beverages.

 

Summary Full Year 2014 Performance (Percent Growth)







Reported

 

Core Constant

Currencya

 

 

Organicb

Volume




Snacks

1


1

Beverages

1


1

Net Revenue

--


4

Operating Profitc

(1)

5


EPS

(1)

9


 















 

 

 

Organic

Volumeb

Net Revenue

 

 

 

Operating

Profitc

 

 

 

Organic

Revenueb

Core

Constant

Currency

Operating

Profita

FLNA

2

3

5

3

6

QFNA

--

(2)

1

(1)

3

LAF

(2)

1

(2.5)

10

9

PAB

--

--

(4)

1

4

Europe

2/1d

(3)

3

4.5

4

AMEA

8/2d

3

(11)

8

(8)

Total Divisions

1/1d

--

(0.5)

4

4

Total PepsiCo

1/1d

--

(1)

4

5

 

Core constant currency results are non-GAAP financial measures that exclude certain items affecting comparability and foreign exchange translation. For more information about our core constant currency results, see "Reconciliation of GAAP and Non-GAAP Information" in the attached exhibits. Please refer to the Glossary for definitions of "Core" and "Constant Currency."

Organic results are non-GAAP financial measures that adjust for impacts of acquisitions, divestitures and other structural changes and foreign exchange translation, as applicable. For more information about our organic results, see "Reconciliation of GAAP and Non-GAAP Information" in the attached exhibits. Please refer to the Glossary for the definition of "Organic."

The reported operating profit performance was impacted by certain items excluded from our core results in both 2014 and 2013. See "Reconciliation of GAAP and Non-GAAP Information" in the attached exhibits for more information about these items. Please refer to the Glossary for the definition of "Core."

d Snacks/Beverages.

 

Summary of Fourth Quarter Financial Performance:

  • Organic revenue grew 5 percent and reported net revenue declined 1 percent. Foreign exchange translation had a 6-percentage-point unfavorable impact on reported net revenue.
  • Developing and emerging market organic revenue grew 10 percent. On a reported basis, developing and emerging market net revenue declined 4 percent, reflecting unfavorable foreign exchange translation, in particular, significant currency volatility in the Russian ruble and Venezuelan bolivar.
  • During the fourth quarter, we remeasured certain net monetary assets of our Venezuelan entities at the SICAD I auction-based rate of 12 bolivars per U.S. dollar versus the fixed exchange rate of 6.3 bolivars per U.S. dollar resulting in a $0.07 per share after-tax net charge reflected in our reported results1. In addition, this change in exchange rate had an unfavorable impact on our core operating results.
  • Core gross margin and core operating margin expanded 70 basis points and 15 basis points, respectively, reflecting the implementation of effective revenue management strategies and productivity initiatives. Reported gross margin increased 60 basis points while reported operating margin decreased 175 basis points.
  • Core constant currency operating profit increased 7 percent. Results in the current year quarter reflect charges associated with efficiency initiatives, substantially offset by incremental investments in the prior year quarter. Reported operating profit decreased 15 percent and included the impact of restructuring and impairment charges, remeasurement of certain net monetary assets of our Venezuelan entities, a pension lump sum settlement charge and mark-to-market net losses on commodity hedges.
  • The company's core effective tax rate was 25.5 percent, which compares to 28.2 percent in the prior-year quarter. The reported effective tax rate was 25.6 percent, above the prior-year quarter of 19 percent.
  • Core EPS was $1.12 and reported EPS was $0.87. Core EPS excludes a negative net impact of $0.08 per share from restructuring and impairment charges, $0.07 per share related to the remeasurement of certain net monetary assets of our Venezuelan entities, $0.06 per share related to a pension lump sum settlement charge and $0.04 per share related to mark-to-market net losses on commodity hedges. Mark-to-market net gains and losses on commodity hedges are subsequently reflected in core division results when the divisions recognize the cost of the underlying commodity in operating profit.

 

1Significant uncertainty exists regarding the exchange mechanisms in Venezuela. In February 2015, the Venezuelan government indicated it would implement further changes to the three existing exchange mechanisms. Any further devaluation of the bolivar or change in the exchange mechanisms could adversely affect our financial results, including resulting in further charges or impairment of our non-monetary assets or a higher than expected unfavorable impact of foreign exchange translation. See page A-17 for additional information.

 

Summary of Full Year 2014 Financial Performance:

  • Organic revenue grew 4 percent and reported net revenue was even. Foreign exchange translation had over a 3-percentage-point unfavorable impact on reported net revenue.
  • Developing and emerging market organic revenue grew 9 percent. On a reported basis, developing and emerging market net revenue declined 1 percent, reflecting unfavorable foreign exchange translation, in particular, significant currency volatility in the Russian ruble and Venezuelan bolivar.
  • Core gross margin increased 55 basis points and core operating margin increased 30 basis points. Reported gross margin increased 75 basis points and reported operating margin decreased 25 basis points.
  • Core constant currency operating profit increased 5 percent. Reported operating profit decreased 1 percent and included the impact of restructuring and impairment charges, remeasurement of certain net monetary assets of our Venezuelan entities, a pension lump sum settlement charge and mark-to-market net losses on commodity hedges.
  • The company's core effective tax rate was 25 percent, which compares to 25.7 percent in the prior year. The reported effective tax rate was 25.1 percent, above the prior year of 23.7 percent.
  • Core EPS was $4.63 and reported EPS was $4.27. Core EPS excludes a negative net impact of $0.21 per share from restructuring and impairment charges, $0.07 per share related to the remeasurement of certain net monetary assets of our Venezuelan entities, $0.06 per share related to a pension lump sum settlement charge and $0.03 per share related to mark-to-market net losses on commodity hedges.
  • Delivered $1 billion of productivity savings in 2014.
  • Cash flow provided by operating activities was $10.5 billion for the year. Free cash flow (excluding certain items) was $8.3 billion for the year.
  • Core net return on invested capital was 17.5 percent for the year, an increase of 110 basis points from the prior year. Reported net return on invested capital was 13.2 percent for the year, a decrease of 80 basis points from the prior year.
  • The company returned a total of $8.7 billion to shareholders in 2014 through $3.7 billion in dividends and $5.0 billion in share repurchases.

Division Operating Summaries:

Frito-Lay North America (FLNA
Organic revenue grew 3.5 percent in the quarter, reflecting volume growth of 2 percent and 2 percentage points of effective net pricing. Reported net revenue grew 3 percent. Core constant currency operating profit grew 6 percent, reflecting the revenue gains, productivity savings, and lower commodity costs, partially offset by operating cost inflation.

For the full year, organic and reported net revenue grew 3 percent, reflecting volume growth of 2 percent and 1 percentage point of effective net pricing. Core constant currency operating profit grew 6 percent, reflecting the revenue gains, productivity savings, and lower commodity costs, partially offset by operating cost inflation.

Quaker Foods North America (QFNA) 
For the quarter, organic revenue was even with the prior year. Reported net revenue declined 2 percent. For the full year, organic revenue declined 1 percent reflecting pricing declines. Reported net revenue declined 2 percent in the full year.

Core constant currency operating profit grew 8 percent in the quarter and 3 percent for the full year due to productivity savings and improvement in our share of the operating results of our Muller Quaker Dairy joint venture, which reflected start-up costs in the prior year. Additionally, full year performance included a net gain associated with a divestiture. These impacts were partially offset by unfavorable net pricing and operating cost inflation.

Latin America Foods (LAF) 
Organic revenue grew 11 percent in the quarter, reflecting 13 percentage points of effective net pricing, partially offset by a 2 percent volume decline. Organic revenue growth was led byVenezuelaArgentina and Brazil. Reported net revenue declined 0.5 percent, reflecting an 11-percentage-point unfavorable impact from foreign exchange translation. Core constant currency operating profit grew 2 percent, reflecting effective net pricing and productivity gains, partially offset by operating and commodity cost inflation, charges associated with efficiency initiatives, and higher advertising and marketing expenses.

For the full year, organic revenue increased 10 percent, reflecting 12 percentage points of effective net pricing, partially offset by a 2 percent volume decline. Organic revenue growth was led by VenezuelaBrazil and Argentina. Reported net revenue grew 1 percent, reflecting an 8-percentage-point unfavorable impact from foreign exchange translation. Core constant currency operating profit grew 9 percent in the year, reflecting the revenue growth and productivity savings, offset by commodity and operating cost inflation.

PepsiCo Americas Beverages (PAB) 
Organic revenue increased 3 percent in the quarter, reflecting 2.5 percentage points of effective net pricing. Reported net revenue increased 1 percent. During the quarter, PAB increased its liquid refreshment beverage value market share position in the U.S. in measured channels. InNorth America, non-carbonated beverage volume increased 4 percent and carbonated soft drink volume decreased 2 percent. Latin America organic beverage volume increased 3 percent.

For the quarter, core constant currency operating profit increased 11 percent, reflecting effective net pricing, productivity gains, and lower commodity costs, partially offset by operating cost inflation and higher advertising and marketing expenses.

For the full year, organic revenue increased 1 percent, reflecting 1.5 percentage points of effective net pricing. Reported net revenue was even with the prior year. Core constant currency operating profit increased 4 percent, reflecting effective net pricing, productivity gains, and lower commodity costs, partially offset by operating cost inflation.

Europe 
Organic revenue grew 6 percent in the quarter, reflecting 3 percentage points of effective net pricing and volume growth of 3 percent in both snacks and beverages. Reported net revenue declined 10 percent, reflecting a 16-percentage-point unfavorable foreign exchange translation impact.

Core constant currency operating profit decreased 5 percent reflecting operating and commodity cost inflation, and charges associated with efficiency initiatives, partially offset by organic revenue growth, productivity gains and lapping of incremental investments in the prior year quarter.

For the full year, organic revenue increased 4.5 percentage points, reflecting 3 percentage points of effective net pricing, as well as volume growth of 2 percent in snacks and 1 percent in beverages. Reported net revenue declined 3 percent, reflecting an 8-percentage-point unfavorable foreign exchange translation impact.

Core constant currency operating profit increased 4 percent for the full year, reflecting organic revenue growth and productivity savings, as well as a gain related to the sale of agricultural assets and the lapping of incremental investments in the prior year. These impacts were partially offset by an impairment charge associated with a brand in Greece, in addition to operating and commodity cost inflation, and charges associated with efficiency initiatives.

AsiaMiddle East & Africa (AMEA) 
For the quarter, organic revenue grew 7 percent, reflecting 8 percent volume growth in snacks and 1.5 percent volume growth in beverages. Reported net revenue increased 4 percent. Core constant currency operating profit decreased 6 percent in the quarter primarily reflecting operating cost inflation and charges associated with efficiency initiatives, partially offset by productivity gains, the lapping of incremental investments in the prior year quarter and revenue growth.

For the full year, organic revenue grew 8 percent driven by 8 percent volume growth in snacks and 2 percent volume growth in beverages and effective net pricing. Reported net revenue increased 3 percent. Core constant currency operating profit declined 8 percent, primarily reflecting operating cost inflation, charges associated with efficiency initiatives and the lapping of a gain related to the Vietnam beverage business refranchising. These impacts were partially offset by the revenue growth and productivity gains, as well as the lapping of incremental investments in the prior year.

2015 Outlook 
The company expects 7 percent core constant currency EPS growth in fiscal 2015 versus its fiscal 2014 core EPS of $4.63, consistent with its long-term target of high-single-digit core constant currency EPS growth. Based on the current foreign exchange market consensus, the company currently expects foreign exchange translation to have an unfavorable impact of approximately 7 percentage points on full year core EPS performance in 2015.

Organic revenue in fiscal 2015 is expected to grow mid-single digits versus 2014, consistent with the company's long-term target. Based on the current foreign exchange market consensus, the company currently expects foreign exchange translation to have an unfavorable impact of approximately 7 percentage points on full year net revenue growth.

In addition for fiscal 2015, the company expects:

  • Low-single-digit commodity inflation, which includes the estimated impact of transaction-related foreign exchange;
  • Productivity savings of approximately $1 billion;
  • Higher interest expense driven by increased debt balances; and
  • A core effective tax rate of approximately 25 percent.

The company is targeting over $10 billion in cash flow from operating activities and more than $7 billion in free cash flow (excluding certain items) in 2015. Net capital spending is expected to be approximately $3 billion in 2015, within the company's long-term capital spending target of less than or equal to 5 percent of net revenue.

The company announced a 7.3 percent increase in its annualized dividend to $2.81 per share from $2.62 per share, to take effect with the dividend expected to be paid in June 2015. The company also anticipates share repurchases of $4.5 to $5 billion in 2015.

The company also announced a new share repurchase program providing for the repurchase of up to $12 billion of PepsiCo common stock commencing on July 1, 2015 and expiring on June 30, 2018.

Original source: PepsiCo