Purchase / NY. (pci) PepsiCo Inc. reported organic revenue growth of 3,6 percent and core earnings per share of 1,32 USD for the second quarter. «Despite operating in what continues to be a challenging and volatile macro environment, we are delivering consistent, strong results», said Chairman and CEO Indra Nooyi. «Our results reflect the power of our portfolio of products and brands, and the strength of our geographic footprint. They also reflect the hard work we have done to position our business for sustainable success. Based on the strength of our year-to-date results and our outlook for the remainder of the year, we are increasing our full-year, core constant currency EPS growth target to eight percent».
Summary of Second Quarter Financial Performance
- Organic revenue grew 3,6 percent and reported net revenue grew 0,5 percent versus the prior-year quarter. Foreign exchange translation had a three-percentage-point unfavourable impact on reported net revenue and structural change related to the 2013 re-franchising of the company´s bottling operations in Vietnam had a slight negative impact in the quarter.
- Organic revenue grew five percent for global snacks and two percent for global beverages in the quarter. On a reported basis, net revenue grew two percent for global snacks, reflecting unfavourable foreign exchange translation, and declined one percent for global beverages, reflecting unfavourable foreign exchange translation and the Vietnam re-franchising.
- Developing and emerging market organic revenue grew eight percent in the quarter. On a reported basis, developing and emerging market net revenue declined one percent in the quarter, reflecting the Vietnam re-franchising and unfavourable foreign exchange translation.
- Core gross margin expanded 60 basis points in the quarter reflecting implementation of effective revenue management strategies and productivity initiatives. Core operating margin expanded ten basis points in the quarter. Excluding the gain related to the Vietnam re-franchising, net of incremental investments from the prior-year quarter results, core operating margin expanded 65 basis points in the quarter. Reported gross margin increased 95 basis points and reported operating margin increased ten basis points in the quarter.
- Core constant currency operating profit increased three percent. Excluding the 137 million USD gain recorded in the prior-year quarter related to the Vietnam re-franchising, net of incremental investments, core constant currency operating profit increased six percent. Reported operating profit increased one percent and included the net impact of mark-to-market gains on commodity hedges and restructuring and impairment charges.
- The company´s core effective tax rate was 26,3 percent and the reported effective tax rate was 26,5 percent, both of which were two percentage points higher than the prior-year quarter.
- Core EPS was 1,32 USD and reported EPS was 1,29 USD. Core EPS excludes a positive net impact of 0,01 USD per share related to mark-to-market net gains on commodity hedges and a 0,04 USD per share negative impact from restructuring and impairment charges. 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.
- On track to deliver targeted one billion USD of productivity savings in 2014.
- Cash flow provided by operating activities was 2,7 billion USD year to date. Free cash flow (excluding certain items) was 1,9 billion USD year to date.
- The company expects to return a total of 8,7 billion USD to shareholders in 2014 through approximately 5,0 billion USD in share repurchases and 3,7 billion USD in dividends.
2014 Guidance and Outlook
The company now expects eight percent (an increase from the company´s previous target of seven percent) core constant currency EPS growth in fiscal 2014 versus its fiscal 2013 core EPS of 4,37 USD. Based on the current foreign exchange market consensus, the company currently expects foreign exchange translation to have an unfavourable impact of approximately four percentage points on full year core EPS growth in 2014.
Excluding the impact of structural changes and foreign exchange translation, organic revenue in 2014 is expected to grow mid-single digits versus 2013, 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 unfavourable impact of approximately three percentage points on full year net revenue growth in 2014.
For 2014, the company expects low-single digit commodity inflation and productivity savings of approximately one billion USD. The company expects higher interest expense driven by increased debt balances and a core effective tax rate of approximately 25 percent.
The company is targeting over ten billion USD in cash flow from operating activities and more than seven billion USD in free cash flow (excluding certain items) in 2014. Net capital spending is expected to be approximately three billion USD in 2014, within the company´s long-term capital spending target of less than or equal to five percent of net revenue.
The company expects to return a total of 8,7 billion USD to shareholders in 2014 through dividends of approximately 3,7 billion USD and share repurchases of approximately 5,0 billion USD.