Pepsi Reports Organic Revenue Growth of 5 Percent in Q4

PepsiCo, Inc. has reported core earnings per share of $1.09 for the fourth quarter of 2012 and $4.10 for the full year, on organic revenue growth of 5 percent for both the quarter and the full year.

15 Feb 2013 --- "In 2012, we delivered 5 percent organic revenue growth, reflecting PepsiCo's many strengths: we're well positioned in attractive and highly complementary growth categories, our portfolio is diversified with products that have broad appeal and a global footprint that is balanced, and we have an enviable portfolio of iconic brands," said Chairman and CEO Indra Nooyi.

"We also took a number of significant steps in 2012 that will even better position our business for sustainable, long-term growth; we increased our brand investment, stepped up our innovation, improved our marketplace execution and embarked on an aggressive productivity program that will contribute to our profitability and act as a funding source of future investment.

"Our recent brand-building initiatives and innovation across the portfolio, including Quaker Real Medleys, Gatorade Energy Chews, Pepsi Next and Doritos Locos Tacos, are translating into success in the marketplace."

"Just as importantly, we remain highly focused on generating attractive returns for our shareholders. We returned $6.5 billion to shareholders in 2012 through a combination of share repurchases and dividends, and today announced an increase in our quarterly dividend that will take effect in June.”

"We're encouraged by the progress we're making and expect performance in the coming year to be consistent with our long-term targets."

The company achieved 5 percent organic revenue growth in the quarter and for the full year with a good balance between volume growth and price realization.

PepsiCo Americas Foods organic revenue grew 8 percent in the quarter driven by organic revenue gains in all divisions, including Frito-Lay North America, Quaker Foods North America and Latin America Foods. Reported net revenue increased 3.5 percent in the quarter, with declines at FLNA and QFNA due to the impact of an extra reporting week in the fourth quarter of 2011.

Frito-Lay North America and PepsiCo Americas Beverages market share trends in the U.S. improved sequentially in the fourth quarter reflecting disciplined execution and significant investments in advertising and marketing.

AMEA organic revenue grew 8 percent in the quarter driven by low-double-digit organic volume growth in snacks and mid-single-digit organic volume growth in beverages. Reported net revenue in AMEA declined 13 percent in the fourth quarter, reflecting the impact of structural changes.

On an organic basis, emerging and developing market revenue grew 9 percent in the quarter. On a reported basis, emerging and developing market net revenue was even with the prior year quarter, primarily due to beverage refranchisings in China and Mexico.    

Organic revenue grew 5 percent in Q4 and reported net revenue declined 1 percent. Organic revenue growth was driven by balanced volume growth and effective net pricing. Structural changes, primarily refranchisings in China and Mexico, negatively impacted reported net revenue performance by 3 percentage points. An extra reporting week in the prior year quarter negatively impacted reported net revenue performance by 3 percentage points and foreign exchange translation had less than a 1 percent unfavorable impact in the quarter. 

Core constant currency operating profit declined 7 percent reflecting the impact of increased commodity costs, increased advertising and marketing expense, higher pension expense, lapping gains related to certain divestitures and asset disposals in the fourth quarter of 2011, partially offset by productivity initiatives. Reported operating profit declined 1.5 percent and included the impacts of a lump sum pension settlement charge in the current year and an extra reporting week in 2011, partially offset by lower restructuring and certain impairment charges and merger and integration charges in the current year. 

The company's core effective tax rate was 26.7 percent, below the prior year quarter primarily due to an adjustment to deferred tax liabilities. The company's reported effective tax rate was 15.4 percent reflecting the benefit of a tax court decision. 

Core EPS was $1.09 and reported EPS was $1.06. Core EPS excludes a $0.14 per share tax benefit related to a tax court decision, an $0.08 per share charge related to a pension lump sum settlement, a $0.06 per share impact of certain restructuring, impairment and integration charges, and a $0.02 per share impact from mark-to-market net losses on commodity hedges. Mark-to-market gains and losses on commodity hedges are subsequently reflected in core division results when the divisions take delivery of the underlying commodity.

For 2013, the company expects 7 percent core constant currency EPS growth versus its fiscal 2012 core EPS of $4.10. Based on the current foreign exchange market consensus, the company expects that foreign exchange translation will have an unfavorable impact of up to 1 point on the company's full-year core EPS performance in 2013. Excluding the impact of structural changes and foreign exchange translation, organic revenue is expected to grow mid-single-digits, consistent with the company's long-term targets. The impact of structural changes, principally beverage refranchisings, are expected to reduce organic revenue growth by approximately 1 percentage point for the full year.

For 2013, the company expects low-single-digit commodity inflation, and productivity savings of approximately $900 million. The company also expects advertising and marketing expense to increase at or above the rate of net revenue growth. Below the operating line, the company expects higher interest expense driven by increased debt balances and a core effective tax rate of approximately 27 percent.

The company is targeting over $9 billion in cash flow from operating activities and more than $7 billion in management operating cash flow (excluding certain items) in 2013.  Net capital spending is expected to be approximately $3 billion in 2013, within the company's long-term capital spending target of less than or equal to 5 percent of net revenue.

Reflecting its commitment to return capital to shareholders, the company announced a new share repurchase program providing for the repurchase of up to $10 billion of PepsiCo common stock from July 1, 2013 through June 30, 2016, which will succeed the current repurchase program that expires on June 30, 2013. The company also announced a 5.6 percent increase in its annualized dividend to $2.27 per share from $2.15 per share, to take effect with the June 2013 payment. Under these programs, the company expects to return a total of $6.4 billion to shareholders in 2013 through dividends of approximately $3.4 billion, and share repurchases of approximately $3.0 billion.