Home > Global Industry > PepsiCo: Reports Q4 and Full-Year 2016 Results

PepsiCo: Reports Q4 and Full-Year 2016 Results

Purchase / NY. (pci) PepsiCo Inc. reported results for the fourth quarter and full-year 2016. The company also provided a financial outlook for 2017. «We concluded 2016 with another strong quarter of operating performance, capping off a successful year. We met or exceeded every financial goal we set for 2016, while delivering a good balance between revenue performance and productivity», said Chairman and CEO Indra Nooyi. Highlights:

Reported (GAAP) Fourth Quarter and Full-Year 2016 Results

Fourth Quarter Full-Year
Net revenue change 5.0% (0.4)%
Foreign exchange impact on net revenue (2)% (3)%
EPS USD 0.97 USD 4.36
EPS change (17)% 19%
Foreign exchange impact on EPS (3)% (3)%

.

Organic/Core (non-GAAP)1 Fourth Quarter and Full-Year 2016 Results

Fourth Quarter Full-Year
Organic revenue growth 3.7% 3.7%
Core EPS USD 1.20 USD 4.85
Core constant currency EPS growth 15% 9%

.
«We concluded 2016 with another strong quarter of operating performance, capping off a successful year. We met or exceeded every financial goal we set for 2016, while delivering a good balance between revenue performance and productivity», said Chairman and CEO Indra Nooyi. «Looking ahead to 2017, we expect solid financial performance despite anticipated continued macroeconomic challenges. Further, reflecting our commitment to providing attractive cash returns to shareholders, we are increasing our dividend per share for the 45th consecutive year, beginning with our June 2017 payment».

1 Please refer to the Glossary for the definitions of non-GAAP financial measures including «Core», «Constant currency», «Organic», «Free Cash Flow» and «Division Operating Profit». Please refer to «2017 Guidance and Outlook» for additional information regarding PepsiCo’s full-year 2017 growth objectives and targets. PepsiCo provides guidance on a non-GAAP basis as the Company cannot predict certain elements which are included in reported GAAP results, including the impact of foreign exchange and commodity mark-to-market adjustments.

.

Summary Fourth Quarter 2016 Performance

Revenue Volume
GAAP Reported% Change Percentage Point Impact Organic% Change Organic Volume% Growth
Foreign Exchange Translation Acquisitions, Divestitures and Structural Changes 53rd Reporting Week Food/Snacks Beverages
FLNA 10 (7) 3 1
QFNA 5 (6) 1
NAB 8 (1) (5) 2 1
Latin America 8 1 9 4 (3)
ESSA 1.5 4 (1) 5 3 1
AMENA (1.5) 7 5 8 3
Total 5 2 (3.5) 4 3 1

.

Operating Profit and EPS
GAAP Reported% Change Percentage Point Impact Core Constant Currency% Change
 Items Affecting Comparability Foreign Exchange Translation
FLNA 9 10
QFNA 10 (0.5) 9
NAB 8 5 13
Latin America 4 (10) 17 11
ESSA 43 (19) 7 31
AMENA (13) (10) (3) (26)
Corporate Unallocated (29) 41 12
Total 6 6 2 15
EPS (17) 30 3 15

.

Note: Rows may not sum due to rounding.
Division operating profit (a non-GAAP measure that excludes corporate unallocated costs) increased by 10% in the quarter and was positively impacted by items affecting comparability (2 points) and negatively impacted by foreign exchange translation (2 points). Core constant currency division operating profit (a non-GAAP measure) increased by 11% (may not sum due to rounding).
Organic revenue, core constant currency and division operating profit results are non-GAAP financial measures. Please refer to the reconciliation of GAAP and non-GAAP information in the attached exhibits and to the Glossary for definitions of «Organic», «Core», «Constant Currency» and «Division Operating Profit».
PepsiCo’s fiscal year ends on the last Saturday of each December, resulting in an additional week of results every five or six years. PepsiCo’s fourth quarter 2016 includes 17 weeks of results and its 2016 fiscal year includes 53 weeks of results.

.

Summary of Fourth Quarter Financial Performance

  • Reported fourth quarter results were impacted by:
    • A 53rd reporting week and the reinvestment of the corresponding operating profit benefit in certain productivity and growth initiatives (incremental investments); and
    • A charge resulting from the redemption of certain senior notes in accordance with the «make-whole» redemption provisions (debt redemption charge).
  • Reported year-ago results were impacted by:
    • A non-cash tax benefit associated with our agreement with the IRS which reduced our reserve for uncertain tax positions.
  • Reported fourth quarter and year-ago results were also impacted by:
    • Pension-related settlements;
    • Restructuring charges in conjunction with the multi-year productivity plans we publicly announced in 2014 and 2012; and
    • Commodity mark-to-market impacts.
  • See A-11 for further details on the above items.
  • Reported net revenue increased 5.0 percent. Foreign exchange translation had a 2 percentage point unfavorable impact on reported net revenue and the 53rd reporting week had a 3.5 percentage point favorable impact. Organic revenue, which excludes the impacts of foreign exchange translation, structural changes and the 53rd reporting week, grew 3.7 percent.
  • Reported gross margin contracted 15 basis points and reported operating margin expanded 15 basis points. Core gross margin contracted 25 basis points and core operating margin expanded 90 basis points. Reported and core operating margin expansion reflect the implementation of effective revenue management strategies and productivity gains.
  • Reported operating profit increased 6 percent and core constant currency operating profit increased 15 percent. The impact of the pension-related settlement charge in the current year and pension-related settlement benefits in the prior year had an 11-percentage-point unfavorable impact on reported operating profit growth. Foreign exchange translation negatively impacted reported operating profit growth by 2 percentage points. The net impacts of restructuring charges and the commodity mark-to-market adjustments increased reported operating profit growth by 3 and 2.5 percentage points, respectively. The 53rd reporting week contributed 5 percentage points to reported operating profit growth, offset by incremental investments of 5 percentage points.
  • The reported effective tax rate was 22.7 percent in 2016 and 11.2 percent in 2015 (due to the non-cash tax benefit associated with the tax settlement referred to above). The core effective tax rate was 24.0 percent in 2016 and 22.5 percent in 2015.
  • Reported EPS was 0.97 USD, a 17 percent decline from the prior year, reflecting the impacts of pension-related settlements, the debt redemption charge this year, as well as the year-ago non-cash tax benefit. Foreign exchange translation negatively impacted reported EPS by 3 percentage points.
  • Core EPS was 1.20 USD, an increase of 13 percent. Excluding the impact of foreign exchange translation, core constant currency EPS increased 15 percent (see schedule A-10 for a reconciliation to reported EPS, the comparable GAAP measure).

Discussion of Fourth Quarter Division Results

In addition to the reported net revenue performance as set out in the tables on pages 2 and A-9, reported operating results were driven by the following:

Frito-Lay North America (FLNA)

Positively impacted by productivity gains and lower raw material costs, partially offset by operating cost inflation. The 53rd reporting week contributed 7 percentage points to reported operating profit growth, partially offset by incremental investments, which reduced reported operating profit growth by 4 percentage points.

Quaker Foods North America (QFNA)

Positively impacted by a prior year impairment charge related to our dairy joint venture and ceasing its operations (9 percentage points), as well as lower raw material costs and productivity gains. These gains were partially offset by operating cost inflation and higher advertising and marketing expenses. The 53rd reporting week contributed 5.5 percentage points to reported operating profit growth, partially offset by incremental investments, which reduced reported operating profit growth by 4 percentage points.

North America Beverages (NAB)

Positively impacted by productivity gains and lower raw material costs, partially offset by operating cost inflation. The pension-related settlement benefit in the prior year had a 5-percentage-point unfavorable impact on reported operating profit growth. The 53rd reporting week contributed 7 percentage points to reported operating profit growth, partially offset by incremental investments, which reduced reported operating profit growth by 3 percentage points.

Latin America

Positively impacted by productivity gains and the impact of efficiency initiatives recorded in the prior year, partially offset by operating cost inflation, higher raw material costs (in local currency terms, driven by a strong U.S. Dollar), higher advertising and marketing expenses, and adverse foreign exchange translation. Incremental investments reduced reported operating profit growth by 13 percentage points. Lower restructuring charges versus the prior year had a 10-percentage-point favorable impact on reported operating profit growth.

Europe Sub-Saharan Africa (ESSA)

Positively impacted by productivity gains, partially offset by operating cost inflation, higher raw material costs (in local currency terms, driven by a strong U.S. Dollar), adverse foreign exchange translation and higher advertising and marketing expenses. Lower restructuring charges versus the prior year had a 19-percentage-point favorable impact on reported operating profit growth. The 53rd reporting week contributed 1.5 percentage points to reported operating profit growth, partially offset by incremental investments, which reduced reported operating profit growth by 1 percentage point.

Asia, Middle East and North Africa (AMENA)

Negatively impacted by operating cost inflation, higher raw material costs (in local currency terms, driven by a strong U.S. Dollar), a charge associated with a recent tax law change as well as the net impact of efficiency initiatives. These impacts were partially offset by productivity gains, lower advertising and marketing expenses and favorable foreign exchange translation. Lower restructuring charges versus the prior year had a 10-percentage-point favorable impact on reported operating profit performance.

Summary Full-Year 2016 Performance

   Revenue  Volume
GAAP Reported%Change Percentage Point Impact Organic% Change Organic Volume% Growth
Foreign Exchange Translation Acquisitions, Divestitures and Structural Changes 53rd Reporting Week Snacks Beverages
FLNA 5 (2) 3.5 1.5
QFNA 1 (2)
NAB 3 (1.5) 2 1
Latin America (17) 11 15 9 3 (2)
ESSA (3) 7 4 3 2
AMENA (1) 5 5 7 4
Total 3 2 (1) 4 3 2

.

Operating Profit and EPS
GAAP Reported% Change Percentage Point Impact Core Constant Currency% Change
 Items Affecting Comparability Foreign Exchange Translation
FLNA 8 8
QFNA 16 16
NAB 6 3 9
Latin America n/m2 n/m2 14 (9)
ESSA 2.5 (3) 6 6
AMENA (34) 31 2 (1.5)
Corporate Unallocated 1 8 9
Total 17 (13) 3 7
EPS 19 (13) 3 9

.

Note: Rows may not sum due to rounding
2 n/m= Not meaningful due to the impact of impairment charges associated with a change in accounting for our Venezuela operations in the prior year.
Division operating profit (a non-GAAP measure that excludes corporate unallocated costs) increased by 15 percent in the year and was positively impacted by items affecting comparability (12 points) and negatively impacted by foreign exchange translation (2.5 points). Core constant currency division operating profit (a non-GAAP measure) increased by 6 percent (may not sum due to rounding).
Organic revenue, core constant currency results and division operating profit are non-GAAP financial measures. Please refer to the reconciliation of GAAP and non-GAAP information in the attached exhibits and to the Glossary for definitions of «Organic», «Core», «Constant Currency» and «Division Operating Profit».
PepsiCo’s fiscal year ends on the last Saturday of each December, resulting in an additional week of results every five or six years. PepsiCo’s 2016 fiscal year includes 53 weeks of results.

.

Summary of Full-Year 2016 Financial Performance:

  • Reported full-year 2016 results were impacted by:
    • A 53rd reporting week offset by the corresponding incremental investments;
    • A debt redemption charge; and
    • An impairment charge to reduce the holding value of our 5 percent indirect equity interest in Tingyi-Asahi Beverages Holding Co. Ltd. (TAB) to its estimated fair value (charge related to the transaction with Tingyi).
  • Reported prior-year results were impacted by:
    • An impairment charge related to our Venezuelan businesses;
    • The deconsolidation of our Venezuelan subsidiaries;
    • A non-cash tax benefit associated with our agreement with the IRS which reduced our reserve for uncertain tax positions; and
    • A charge related to a write-off of the recorded value of a call option to increase our holding in TAB (charge related to the transaction with Tingyi)
  • Reported full-year and prior-year results were also impacted by:
    • Pension-related settlements;
    • Restructuring charges in conjunction with the multi-year productivity plans we publicly announced in 2014 and 2012; and
    • Commodity mark-to-market impacts.
  • See A-10 for further details on the above items.
  • Reported net revenue declined 0.4 percent. Foreign exchange translation had a 3-percentage-point unfavorable impact and the Venezuela deconsolidation had a 2-percentage-point unfavorable impact on the reported net revenue change. Organic revenue, which excludes the impacts of foreign exchange translation, structural changes and the 53rd reporting week, grew 3.7 percent.
  • Reported gross margin expanded 65 basis points and reported operating margin expanded 235 basis points. Reported operating margin expansion benefited from the impact of the 2015 Venezuela impairment charges. Core gross margin expanded 50 basis points and core operating margin expanded 80 basis points. Reported and core operating margin expansion reflect the implementation of effective revenue management strategies and productivity gains, partially offset by incremental investments.
  • Reported operating profit increased 17 percent and core constant currency operating profit increased 7 percent. The 2015 Venezuela impairment charges had a 17-percentage-point favorable impact on reported operating profit growth, and the Venezuela deconsolidation had a 2-percentage-point unfavorable impact on reported operating profit growth. The commodity mark-to-market net impact favorably impacted reported operating profit by 2 percent. The net impact of charges related to the transaction with Tingyi and the pension-related settlements each had a 4 percentage-point unfavorable impact on reported operating profit growth. The 53rd reporting week positively contributed 1 percentage point to reported operating profit growth, more than fully offset by incremental investments, which reduced reported operating profit growth by 2 percentage points.
  • The reported effective tax rate was 25.4 percent in 2016 and 26.1 percent in 2015. The core effective tax rate was 24.5 percent in 2016 and 24.3 percent in 2015.
  • Reported EPS was 4.36 USD, a 19 percent increase from the prior year, primarily reflecting the impact of the 2015 Venezuela impairment charges. Foreign exchange translation negatively impacted reported EPS by 3 percentage points.
  • The 2015 Venezuela impairment charges and the Venezuela deconsolidation had a net 26-percentage-point favorable impact on reported EPS growth and the Venezuela deconsolidation had a 2.5-percentage-point unfavorable impact on core EPS growth.
  • Core EPS was 4.85 USD, an increase of 6 percent from the prior year. Excluding the impact of foreign exchange translation, core constant currency EPS increased 9 percent (see schedule A-10 for a reconciliation to reported EPS, the comparable GAAP measure).
  • Cash flow provided by operating activities was 10.4 billion USD. Free cash flow (excluding certain items) was 7.8 billion USD.

Discussion of Full-Year 2016 Division Results:

In addition to the reported net revenue performance as set out in the tables on pages 7 and A-9, reported operating results were driven by the following:

Frito-Lay North America (FLNA)

Positively impacted by productivity gains and lower raw material costs, partially offset by operating cost inflation and higher advertising and marketing expenses. The 53rd reporting week contributed 2 percentage points to reported operating profit growth, partially offset by incremental investments, which reduced reported operating profit growth by 1.5 percentage points.

Quaker Foods North America (QFNA)

Positively impacted by prior year impairment charges related to our dairy joint venture and ceasing of its operations (17 percentage points), as well as productivity gains and lower raw material costs, partially offset by higher advertising and marketing expenses and operating cost inflation. The 53rd reporting week contributed 2 percentage points to reported operating profit growth, partially offset by incremental investments, which reduced reported operating profit growth by 1.5 percentage points.

North America Beverages (NAB)

Positively impacted by productivity gains and lower raw material costs, partially offset by operating cost inflation and higher advertising and marketing expenses. Pension-related benefits in the prior year reduced reported operating profit by 2.5 percentage points. The 53rd reporting week contributed 1.5 percentage points to reported operating profit growth, partially offset by incremental investments, which reduced reported operating profit growth by 1 percentage point.

Latin America

Positively impacted by the 2015 Venezuela impairment charges and the impact of efficiency initiatives (4 percentage points) as well as current year productivity gains. These impacts were partially offset by operating cost inflation, the impact of the Venezuela deconsolidation (which reduced reported operating profit growth by 19 percentage points), higher raw material costs (in local currency terms, driven by a strong U.S. Dollar), adverse foreign exchange translation and higher advertising and marketing expenses. Incremental investments reduced reported operating profit growth by 4 percentage points.

Europe Sub-Saharan Africa (ESSA)

Positively impacted by productivity gains, partially offset by higher raw material costs (in local currency terms, driven by a strong U.S. Dollar), operating cost inflation, higher advertising and marketing expenses and adverse foreign exchange translation. Incremental investments reduced reported operating profit growth by 2 percentage points.

Asia, Middle East and North Africa (AMENA)

Negatively impacted by the net impact of charges related to the transaction with Tingyi (32 percentage points), operating cost inflation and higher advertising and marketing expenses, partially offset by productivity gains. Additionally, the impact from a prior-year gain related to the refranchising of a portion of our beverage business in India negatively impacted reported operating profit performance by 4 percentage points. This impact was partially offset by a prior-year impairment charge associated with a joint venture in the Middle East which positively contributed 3 percentage points to reported operating profit performance.

2017 Guidance and Outlook

The Company provides guidance on a non-GAAP basis as the Company cannot predict certain elements which are included in reported GAAP results, including the impact of foreign exchange and commodity mark-to-market adjustments.

The Company expects 2017 organic revenue growth of at least 3 percent. Based on current market consensus rates, foreign exchange translation is expected to negatively impact reported net revenue growth by approximately 3 percentage points and the 53rd week in 2016 is expected to negatively impact reported net revenue growth by 1 percentage point.

The Company expects 2017 core earnings per share of 5.09 USD, driven by the following expectations and factors:

2016 core earnings per share USD 4.85
Expected core constant currency EPS growth 8 percent
Negative impact of foreign currency translation3 (3) percent
Expected 2017 core earnings per share USD 5.09

.
Further, the Company expects:

  • Approximately 10 billion USD in cash flow from operating activities and approximately 7 billion USD in free cash flow (excluding certain items); and
  • Net capital spending of approximately 3 billion USD.

The Company also announced a 7 percent increase in its annualized dividend to 3.22 USD per share from 3.01 USD per share, effective with the dividend expected to be paid in June 2017. Total dividends to shareholders are expected to be approximately 4.5 billion USD in 2017. In addition, the Company anticipates share repurchases of approximately 2 billion USD, resulting in expected total cash returned to shareholders of approximately 6.5 billion USD in 2017.