Pepsi to Cut 3% of Global Workforce, Reports Net Rise in Q4
Pepsi will implement a three-year productivity program that is expected to generate over $500 million in incremental cost savings in 2012, further incremental reductions in the cost base of about $500 million in 2013, and an additional $500 million in 2014.
Feb 10 2012 --- PepsiCo has announced a multi-year restructuring program expected to generate $1.5 billion of incremental cost savings by 2014 through optimization of operating practices and organization structure. It includes a reduction in force of about 8,700 employees, about 3 percent of global workforce
"In a volatile global environment over the past five years, PepsiCo has delivered double-digit compound annual growth in core net revenue, 8% compound annual growth in core EPS, and returned about $30 billion to shareholders in the form of dividends and share repurchases," said PepsiCo Chairman and CEO Indra Nooyi. "Our goal is to continue on that earnings trajectory over the next 5 to 10 years, fully recognizing that we need to make changes in how we operate to address the challenges we identified in the review process. 2012 will be a transition year, in which we will be taking the appropriate steps to build a stronger, more successful company going forward."
James Schiro, PepsiCo's presiding director, said: "The Board of Directors has been engaged throughout the review process. We are fully aligned with and supportive of management with respect to both the strategic direction of the Company and also the initiatives being announced today."
The Company reaffirmed the underlying strength of its integrated food and beverage portfolio -- and concluded that PepsiCo offers the most compelling value to shareholders as one company.
Beginning in 2012, PepsiCo is undertaking a number of key actions to further strengthen the Company and enhance shareholder value. The Company said it plans to:
• Significantly increase investments in its iconic brands and in bringing innovation to market. Advertising and marketing spending will increase by $500-$600 million in 2012, the majority in North America. Going forward, it expects to maintain or increase that rate of support as a percentage of revenues. To drive efficiencies, it will reduce the number of agency partners and also take steps to leverage the global scale of its top brand platforms. The brand investments are expected to drive topline growth and enable greater price realization;
• Implement a three-year productivity program that is expected to generate over $500 million in incremental cost savings in 2012, further incremental reductions in the cost base of about $500 million in 2013, and an additional $500 million in 2014. The productivity savings will span every aspect of the business: leveraging new technologies and processes across operations, go-to-market and information systems; heightened focus on best practice sharing across the globe; consolidating manufacturing, warehouse and sales facilities; and implementing simplified organization structures, with wider spans of control and fewer layers of management. This effort includes headcount reductions of about 8,700 employees across 30 countries, about 3% of the Company's global workforce. The productivity programs will enhance the Company's cost-competitiveness as well as provide a source of funding for future brand-building and innovation initiatives.
• Improve its net return on invested capital by at least 50 basis points annually beginning in 2013 through increased focus on capital spending and working capital management. As an example, in 2012 we will be reducing capital expenditures by 10% versus 2011. The emphasis is on systematically improving the efficiency of the existing asset base; and
• Enhance returns to shareholders in 2012 through both a 4% increase in its annual dividend beginning with the June 2012 dividend payment, and also the execution of a share repurchase program this year of at least $3 billion.
"As we implement our strategic priorities in 2012, we've had to make some tough decisions," said Chief Financial Officer Hugh Johnston. "As a result, 2012 will be a year of transition, one in which we will make the right investments to position PepsiCo properly to achieve long-term high-single-digit core constant currency EPS growth."
For 2012, the Company is targeting mid-single-digit core constant currency net revenue growth, in-line with its long-term target. It expects a decline in core constant currency EPS of approximately 5 percent from its fiscal 2011 core EPS of $4.40.
PepsiCo, Inc. also reported growth in volume, net revenue, operating profit and earnings per share for the fourth quarter and the full-year 2011. The results reflect top-line gains across its worldwide snacks and beverage businesses, the acquisition of Wimm-Bill-Dann (WBD), gains from sales of certain businesses and the favorable impact of an extra reporting week offset by high commodity costs.
“In 2011, we delivered solid top- and bottom-line growth,” said PepsiCo Chairman and CEO Indra Nooyi. “We continued to stimulate strong consumer demand for our products, and our successful pricing and productivity programs partially offset the impacts of inflation. Importantly, in a year characterized by a challenging macroeconomic environment and political turbulence, we took advantage of gains from strategic adjustments to our portfolio to reinvest in key capabilities and markets.”
Full-year worldwide snacks volume increased 2.5 percent on an organic basis, reflecting broad-based gains in the snacks portfolio. Full-year worldwide beverage volume increased 1 percent on an organic basis. Full-year volume performance was led by growth in emerging markets, where volume increased 8 percent in snacks and 3 percent in beverages on an organic basis. Full-year net revenue increased 14 percent, driven by the benefits of volume growth, effective net pricing, favorable foreign exchange and the impact of the acquisitions of our North American anchor bottlers and WBD.
Reported full-year operating profit increased 16 percent including the extra reporting week and core operating profit for the year increased 6 percent. Full-year division core operating profit increased 7 percent, reflecting effective net pricing, synergies from the bottler acquisition and the impact of the WBD acquisition, partially offset by higher commodity costs.
Frito-Lay North America (FLNA) net revenue grew 6 percent in the quarter, reflecting volume growth of 1 percent, effective net pricing, product innovation and marketplace execution. Each of the division’s six largest brands – Lay’s, Doritos, Cheetos, Ruffles, Tostitos and Fritos – posted strong revenue growth. Net revenue growth and cost control more than offset the impact of high commodity cost inflation, resulting in 10 percent operating profit growth. For the full-year, FLNA net revenue grew 4 percent, reflecting volume growth of 1 percent and effective net pricing. Operating profit grew 7 percent for the full year on the revenue gains and strong cost control, and despite high levels of commodity cost inflation.
Latin America Foods (LAF) Net revenue growth of 7 percent in the quarter was driven by positive price realization across LAF and reflected volume growth of 6 percent in the quarter with solid gains in the division’s largest markets, Mexico and Brazil, and strong growth in some key markets across Central and South America. Profit growth was muted due to high commodity inflation and the adverse impact of foreign exchange. A gain from the sale of a fish business in Brazil contributed 12 percentage points of operating profit growth and reduced net revenue growth by 2 percentage points in the quarter. For the full-year, volume growth of 5 percent and strong price realization led to double-digit net revenue and operating profit growth, although operating profit growth was adversely impacted by high commodity cost inflation. The gain from the sale of the fish business in Brazil contributed 5 percentage points of profit growth for the year and reduced net revenue growth by 1 percentage point.
Quaker Foods North America (QFNA) net revenue declined 2 percent in the quarter. Operating profit grew 11 percent in the quarter driven by gains from the disposal of certain assets coupled with solid cost controls and productivity initiatives offsetting high commodity cost inflation and volume declines. Gains from a divestiture and an asset sale contributed 14 percentage points of profit growth in the quarter. For the full-year, QFNA delivered 8 percent operating profit growth, reflecting the asset sale gains which contributed 4 percentage points of growth and an inventory accounting change in the first quarter which contributed 2 percentage points. Efforts throughout the year on cost controls and pricing actions fully offset weak consumer demand and commodity cost inflation.
PepsiCo Americas Beverages (PAB) net revenue in the quarter was reduced by 4 percentage points by the refranchising of the division’s beverage business in Mexico. On a full-year basis, net revenue grew 8 percent, reflecting effective net pricing and the impact of the bottler acquisition. The refranchising of Mexico reduced full-year net revenue by more than 1 percentage point. PAB volume declined 1.5 percent in the quarter but was up 1 percent for the full-year, with growth in non-carbonated beverages offset by declines in carbonated soft drinks (CSDs). In North America, net revenue declined 1 percent for the quarter and increased 9 percent for the full-year. Volume declined 4 percent for the quarter and, on an organic basis, declined 1 percent for the year, in part reflecting the impact on consumer demand of pricing actions taken to offset commodity cost inflation. For the year, non-carbonated beverage volume in North America grew low-single-digits with Gatorade growth of high-single-digits behind product innovation and the benefit of implementing direct-store-delivery to small format stores. The company’s successful Trop 50 product continued to perform well in its second year since introduction, increasing volume over 35 percent, and trademark Lipton increased volume 6 percent. CSD volume in North America declined mid-single-digits on an organic basis for the year.
Latin America Beverages delivered solid volume growth in the quarter and for the year driven primarily by strength in Mexico and Central America.
Operating profit declined in the quarter and for the year primarily as a result of increased commodity costs which offset the benefits of net pricing, productivity, synergies from the anchor bottler acquisitions and a gain associated with the refranchising of the division’s Mexico bottling operations, which contributed 5 percentage points of operating profit growth in the quarter.
Europe net revenue increased 31 percent, primarily reflecting the benefit of the WBD acquisition as well as effective net pricing. Volume increased double-digits in both snacks and beverages for the fourth quarter and full-year, including the impact of the WBD acquisition. In the fourth quarter, snacks volume increased 2 percent on an organic basis, led by high-single-digit growth in South Africa and Turkey. Beverage volume declined 1 percent on an organic basis. Fourth quarter operating profit growth of 36 percent benefited from the impact of the WBD acquisition and effective net pricing, offset somewhat by high levels of commodity and other cost inflation.Full-year net revenue increased 41 percent, 12 percent excluding the impact of the WBD acquisition. Full-year operating profit increased 18 percent.
For Asia, Middle East & Africa (AMEA), fourth quarter net revenue increased 16 percent, driven by effective net pricing and the volume growth. Fourth quarter snacks volume increased 15 percent and beverage volume grew 3 percent, led by strong performance in key emerging markets. In the fourth quarter, snacks volume grew double digits in China, India and the Middle East. Beverage volume growth was driven by double-digit gains in India, Saudi Arabia and Vietnam. China beverage volume growth was impacted by the introduction of a consumer-preferred 500ml PET value package in the third quarter, which drove strong unit growth and a double-digit net revenue increase but adversely impacted reported volume growth. Fourth quarter operating profit growth of 227 percent almost entirely reflected the gain associated with the sale of the division’s minority investment in its franchise bottler in Thailand. The impact on profitability of the volume growth and effective net pricing was offset by higher commodity costs, the impact of civil unrest in certain countries in the Middle East, and by increased marketing support in key countries. On a full year basis, snacks volume grew 15 percent and beverage volume grew 5 percent. Full-year net revenue increased 17 percent and operating profit grew 27 percent.
