Saturday, July 21, 2018
 
 
   
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
   
   

TOP NEWS

PepsiCo reports results for Q2 of ’18; Reaffirms ’18 financial targets
Thursday, 12 July, 2018, 08 : 00 AM [IST]
Purchase
PepsiCo, Inc reported results for the second quarter of 2018.

Reported [generally-accepted accounting principles (GAAP)] second quarter and year-to-date 2018 results


Second quarter

Year-to-date

Net revenue growth

2.4%

3.2%

Foreign exchange impact on net revenue

1%

1%

Earning per share (EPS)

$1.28

$2.21

EPS change

(13)%

(7)%

Foreign exchange impact on EPS

1%

2%



Organic/core (non-GAAP) second quarter and year-to-date 2018 results


Second quarter

Year-to-date

Organic revenue growth

2.6%

2.5%

Core EPS

$1.61

$2.58

Core constant currency EPS growth

7%

4%


 
“We are pleased with our results for the second quarter and we remain on track to achieve the financial targets we set out at the beginning of the year,” said Indra Nooyi, chairman and chief executive officer, PepsiCo, Inc.

She added, “The majority of our businesses performed very well, particularly our international  divisions propelled by continued growth in developing and emerging markets, and our North America beverages sector posted sequential net revenue and operating profit performance improvement.”

Division operating profit (a non-GAAP measure that excludes corporate unallocated costs) increased by three per cent in the quarter and was nominally impacted by items affecting comparability and positively impacted by foreign exchange translation (one percentage point).

Core constant currency division operating profit (a non-GAAP measure) increased by 1.5 per cent. Organic revenue, core constant currency and division operating profit results are non-GAAP financial measures.

Summary of second quarter financial performance
Reported second quarter and year-ago results were impacted by a provisional transition tax expense related to the Tax Cuts and Jobs Act (TCJ Act), a non-cash tax benefit associated with our resolution with the Internal Revenue Service (IRS) of all open matters related to the audits of our taxable years 2012 and 2013 (the 2012 and 2013 audit resolution), restructuring charges and commodity mark-to-market net impacts.

    • Reported net revenue increased 2.4 per cent. Foreign exchange translation had a one-percentage-point favourable impact on reported net revenue growth. Organic revenue, which excludes the impacts of foreign exchange translation, structural and other changes, grew 2.6 per cent
    • Reported gross margin contracted 20 basis points and core gross margin contracted 35 basis points. Reported operating margin expanded 25 basis points and core operating margin expanded five basis points
    • Reported operating profit increased four per cent and core constant currency operating profit increased two per cent. Commodity mark-to-market net impacts positively impacted reported operating profit growth by one percentage point and restructuring charges had a nominal impact. A gain from refranchising the company’s beverage business in Thailand positively contributed five percentage points to both reported and core operating profit growth. The prior-year gain associated with the sale of the company’s minority stake in Britvic plc (Britvic) negatively impacted both reported and core operating profit growth by three percentage points. Foreign currency translation positively contributed one percentage point to both reported and core operating profit growth
    • The reported and core effective tax rates in the second quarter of 2018 were 36.9 per cent and 21 per cent, respectively. The reported and core effective tax rates in the second quarter of 2017 were 23.7 and 23.5 per cent, respectively. Based primarily on new transition tax guidance related to the TCJ Act issued by the IRS 4 during the second quarter of 2018, the company recorded an additional provisional transition tax expense of $777 million, which negatively impacted the reported effective tax rate by 27 percentage points. The 2012 and 2013 audit resolution positively impacted the reported effective tax rate by 11 percentage points
    • Reported EPS was $1.28, a decrease of 13 per cent from the second quarter of 2017. Foreign exchange translation positively contributed one percentage point to reported EPS performance. Core EPS was $1.61, an increase of eight per cent from the second quarter of 2017. Excluding the impact of foreign exchange translation, core constant currency EPS increased seven per cent from the prior-year period
    • Net cash provided by operating activities was $2.4 billion.

Discussion of second quarter 2018 reported division results

Frito-Lay North America (FLNA)
Operating profit grew five per cent, primarily reflecting the net revenue growth and planned cost reductions across a number of expense categories, partially offset by certain operating cost increases.

Quaker Foods North America (QFNA)
Operating profit was flat, reflecting the net revenue performance, as well as less favourable settlements of promotional spending accruals compared to the prior year, which negatively impacted operating profit performance by four percentage points. In addition, higher commodity costs negatively impacted operating profit performance by three percentage points. These impacts were partially offset by planned cost reductions across a number of expense categories and lower advertising and marketing expenses. Additionally, insurance settlement recoveries related to the 2017 earthquake in Mexico and other insurance adjustments positively contributed two percentage points and 2.5 percentage points, respectively, to operating profit performance.

North America Beverages (NAB)
Operating profit decreased 16 per cent, reflecting certain operating cost increases, including increased transportation costs, and the net revenue performance, as well as higher commodity costs, which negatively impacted operating profit performance by five percentage points. These impacts were partially offset by planned cost reductions across a number of expense categories, as well as certain insurance adjustments which positively contributed two percentage points to operating profit performance. Less favourable settlements of promotional spending accruals compared to the prior year and a favourable legal settlement in the prior year negatively impacted operating profit performance by two percentage points and one percentage point, respectively.

Latin America
Operating profit increased 18 per cent, reflecting planned cost reductions across a number of expense categories and effective net pricing. Additionally, insurance settlement recoveries related to the 2017 earthquake in Mexico and the impact of a promotional spending accrual adjustment contributed five percentage points and four percentage points, respectively, to operating profit growth. These impacts were partially offset by certain operating cost increases and the volume declines, as well as higher commodity costs, which reduced operating profit growth by eight percentage points. Lower restructuring and impairment charges contributed 11 percentage points to operating profit growth.

Europe Sub-Saharan Africa (ESSA)
Operating profit decreased 11 per cent, reflecting a prior-year gain associated with the sale of our minority stake  in Britvic, which negatively impacted operating profit performance by 19 percentage points, certain operating cost increases and higher advertising and marketing expenses. Additionally, higher commodity costs negatively impacted operating profit performance by three percentage points. These impacts were partially offset by the net revenue growth and planned cost reductions across a number of expense categories. Favourable foreign exchange positively contributed four percentage points to operating profit performance.

Asia, the Middle-East and North Africa (AMENA)
Operating profit increased 61 per cent, primarily reflecting the net impact of refranchising our beverage businesses in Thailand in 2018 and Jordan in 2017, which increased operating profit growth by 42 percentage points. Additionally, the effective net pricing, planned cost reductions across a number of expense categories and the volume growth contributed to operating profit growth. These impacts were partially offset by certain operating cost increases, as well as higher commodity costs, which reduced operating profit growth by three percentage points.

Summary of year-to-date financial performance
Reported year-to-date 2018 and 2017 results were impacted by a provisional transition tax expense related to the TCJ Act, a non-cash tax benefit associated with the 2012 and 2013 audit resolution, restructuring charges and commodity mark-to-market net impacts.
    • Reported net revenue increased 3.2 per cent. Foreign exchange translation had a one percentage-point favourable impact on reported net revenue growth. Organic revenue, which excludes the impacts of foreign exchange translation, structural and other changes, grew 2.5 per cent
    • Reported gross margin contracted 60 basis points and core gross margin contracted 50 basis points. Reported operating margin contracted 35 basis points and core operating margin contracted 45 basis points
    • Reported operating profit increased one per cent and core constant currency operating profit decreased one per cent. Commodity mark-to-market net impacts and lower restructuring charges positively contributed to reported operating profit growth by one percentage point on a combined basis
    • A gain from refranchising our beverage business in Thailand positively contributed three percentage points to both reported and core operating profit growth. The prior-year gain associated with the sale of our minority stake in Britvic and the payment of a bonus extended to certain US employees in connection with the TCJ Act in the first quarter of 2018 each negatively impacted both reported and core operating profit growth by two percentage points. Foreign currency translation positively contributed one percentage point to both reported and core operating profit growth
    • The reported and core effective tax rates year-to-date 2018 were 30.2 per cent and 20 per cent, respectively. The reported and core effective tax rates year-to-date 2017 were 23.3 and 23.1 per cent, respectively. Based primarily on transition tax guidance related to the TCJ Act issued by the IRS during the second quarter, we recorded an additional provisional transition tax expense of $777 million, which negatively impacted the reported nine effective tax rate by 17 percentage points. The 2012 and 2013 audit resolution positively impacted the reported effective tax rate by seven percentage points
    • Reported EPS was $2.21, a decrease of seven percent from year-to-date 2017. Foreign exchange translation positively contributed two percentage points to reported EPS performance
    • Core EPS was $2.58, an increase of six per cent over year-to-date 2017. Excluding the impact of foreign exchange translation, core constant currency EPS increased four per cent over the prior-year period
    • Net cash provided by operating activities was $ 1.1 billion

Discussion of year-to-date reported division results

Frito-Lay North America (FLNA)
Operating profit grew three per cent, primarily reflecting the net revenue growth and planned cost reductions across a number of expense categories, partially offset by certain operating cost increases, as well as a bonus extended to certain US employees in connection with the TCJ Act, which reduced operating profit growth by two percentage points. Additionally, higher commodity costs, primarily potatoes and motor fuel, reduced operating profit growth by two percentage points.

Quaker Foods North America (QFNA)
Operating profit declined three per cent, reflecting the net revenue performance and certain operating cost increases, as well as higher commodity costs, which negatively impacted operating profit performance by three percentage points. These impacts were partially offset by planned cost reductions across a number of expense categories and lower advertising and marketing expenses.

North America Beverages (NAB)
Operating profit decreased 18 per cent, reflecting certain operating cost increases, including increased transportation costs, and the net revenue performance, as well as higher commodity costs, which negatively impacted operating profit performance by 6 percentage points. These impacts were partially offset by planned cost reductions across a number of expense categories, as well as certain insurance adjustments and a gain associated with a sale of an asset, each of which positively contributed one percentage point to operating profit performance. A bonus extended to certain US employees in connection with the TCJ Act negatively impacted operating profit performance by three percentage points.

Latin America
Operating profit increased 27 per cent, reflecting planned cost reductions across a number of expense categories and effective net pricing, as well as insurance settlement recoveries related to the 2017 earthquake in Mexico, which contributed five percentage points to operating profit growth. These impacts were partially offset by certain operating cost increases and the volume declines, as well as higher commodity costs, which reduced operating profit growth by nine percentage points. Lower restructuring and impairment charges and favorable foreign exchange contributed 12 percentage points and four percentage points, respectively, to operating profit growth.

Europe Sub-Saharan Africa (ESSA)
Operating profit decreased 5.5 per cent, reflecting a prior-year gain associated with the sale of our minority stake in Britvic, which negatively impacted operating profit performance by 16 percentage points, certain operating cost increases and higher advertising and marketing expenses. Additionally, higher commodity costs negatively impacted operating profit performance by 3.5 percentage points. These impacts were partially 11 offset by the net revenue growth and planned cost reductions across a number of expense categories. Favourable foreign exchange positively contributed five percentage points to operating profit performance.

Asia, the Middle-East and North Africa (AMENA)
Operating profit increased 43 per cent, primarily reflecting the net impact of refranchising our beverage businesses in Thailand in 2018 and Jordan in 2017, which increased operating profit growth by 26 percentage points. Additionally, the net revenue growth and planned cost reductions across a number of expense categories contributed to operating profit growth. These impacts were partially offset by certain operating cost increases, as well as higher commodity costs, which reduced operating profit growth by three percentage points.

Guidance and outlook for 2018
The company provides guidance on a non-GAAP basis as it cannot predict certain elements which are included in reported GAAP results, including the impact of foreign exchange translation and commodity mark-to-market impacts.

Consistent with its previous guidance for 2018, the company expects the following:
    • Full-year organic revenue growth to be at least in line with the 2017 growth rate of 2.3 per cent
    • Based on current market consensus rates, foreign exchange translation to have a neutral impact on revenue and earnings per share
    • A core effective tax rate in the “low 20s,” reflecting benefits of the TCJ Act
    • The benefit of the TCJ Act to be substantially reinvested in initiatives to benefit the company’s US- based front line workforce and to otherwise increase its capabilities
    • Core earnings per share of $5.70, a nine per cent increase compared to 2017 core earnings per share of $5.23
    • Approximately $9 billion in cash from operating activities and free cash flow of approximately $6 billion, which assumes net capital spending of approximately $3.6 billion and a discretionary pension contribution of $1.4 billion
    • Total cash returns to shareholders of approximately $7 billion. Total dividends to shareholders are expected to be approximately $5 billion and share repurchases are expected to be approximately $2 billion
 
Print Article Back FNB News Twitter
Post Your commentsPost Your Comment
* Name :    
* Email :    
  Website :  
Comments :  
   
 

 
 
Food and Beverage News ePaper
 
 
 
 
 
 
 
 
FiA2018_Webbanner150x60
 
VF118_Banner_150x60_E_D2
 
VFE18-banner-150x60
 
Advertise Here
 
 
Interview
“Ninety-eight per cent of existing seafood market unorganised”
Past News...
 
FORTHCOMING EVENTS
 

FNB NEWS SPECIALS
 
Overview
Packaged wheat flour market growth 19% CAGR; may reach Rs 7500 cr: Ikon
Past News...
 
Advertise Here
 
Advertise Here
 
Recipe for Success
“Recreating culinary school recipes challenge in India,” says Dhingra
Past News...



Home | About Us | Contact Us | Feedback | Disclaimer
Copyright © Food And Beverage News. All rights reserved.
Designed & Maintained by Saffron Media Pvt Ltd