) reported impressive fourth quarter results beating the Zacks
Consensus Estimate for both revenue and earnings. Moreover, the
company provided an impressive outlook for 2013 which was in line
with long term targets and also increased its dividend rate.
PepsiCo's fourth quarter 2012 earnings per share of $1.09 beat
the Zacks Consensus Estimate of $1.05 by 3.8%. We believe that
the earnings beat could be driven by negligible currency
headwinds and lower taxes in the quarter. Earnings declined 5%
from the year-ago levels due to year-over-year shortfall in
This popular snack and beverage company has beaten estimates
for the past 4 straight quarters delivering an average earnings
surprise of 2.74%.
Top-Line and Margin Details
Total sales in the quarter declined 1% year over year to
$19.95 billion mainly due to an extra week in the prior-year
quarter and some structural changes. Revenues, however, beat the
Zacks Consensus Estimate of $19.67 billion.
The beverage re-franchising transactions in Mexico and China
pulled down revenues by 3%, higher than managements' expectation
of 2.5%. Further, an extra reporting week in the prior-year
quarter hurt revenues by 3%.
Foreign exchange hurt revenue growth by less than 1%, in line
with managements' expectations. Excluding these factors, revenues
increased 5% on an organic basis driven by balanced growth in
volume and price. On a constant currency basis, revenues were
Impressive performance of the Americas Foods business,
especially the Latin America segment also boosted sales growth in
the quarter. The American foods business gained from successful
innovations and increased brand building investments.
Core constant currency operating profit declined 7% in the
quarter mainly due to increased ingredient costs and higher
advertising, marketing and pension expenses. Stronger prior year
comparisons which included one time gains from divestitures and
asset disposals also hurt operating profit growth.
PepsiCo Americas Foods (PAF):
The segment, which makes popular foods like Lay's potato chips,
Cheetos cheese flavored snacks and Quaker-brand cereals and
snacks,recorded revenue growth of 3.5% (organically up 8%) to
$7.63 billion. Price/mix gains, volume growth, innovation and
higher marketing spend boosted revenues of the segment. The
segment's core operating profit declined 2% in constant currency
million due to high commodity and advertising/marketing
Frito-Lay North America (FLNA):
Revenues declined 1% year over year to $4.1 billion due to the
extra reporting week in the prior-year quarter. However, on an
organic basis revenue grew 5% fueled largely by volume growth and
improved market share trends. Core operating profit was up 3% as
organic top-line growth and productivity benefits were partially
offset the commodity cost headwinds and increased marketing
Latin AmericaFoods (LAF):
Revenues increased 13% year over year (both reported and organic)
to $2.7 billion driven largely by price/mix gains and also
organic volume growth. Despite revenue growth, core operating
profit declined 4.5% in constant currency terms due to commodity
cost increases and higher marketing spend.
Quaker Foods North America (QFNA):
Revenues declined 0.5% to $815 million due to the extra reporting
week. Organically revenues increased 5% driven largely by volume
gains. Core operating profit declined 18% in constant currency
due to high commodity and marketing costs and strong prior-year
PepsiCo Americas Beverages (PAB):
Net revenue of this segment, which makes popular beverages like
Pepsi, Mountain Dew, Diet Pepsi, and 7UP,slipped 4% year over
year to $6.07 billion mainly due to the extra reporting week and
re-franchising of the Mexican beverage business. Organically
revenues improved 2.5% driven largely by price/mix gains and
improved market share trends due to increased brand investments.
Non-carbonated beverages volume improved while carbonated soft
drinks volume declined in the quarter.
Core operating profit declined 8% in constant currency in the
quarter due to high commodity costs and increased
Net revenue in the segment improved 1% year over year (up 3%
organically) to $4.29 billion mainly due to price/mix gains and
volume growth in Russia and parts of Eastern Europe. Core
operating profit declined 10% year over year in constant currency
due to higher commodity and marketing costs.
Asia, Middle East & Africa (AMEA):
Net revenue declined 13% to $1.96 billion mainly due to
re-franchising of beverage business in China. Organically,
revenue grew 8% driven by volume growth for both snacks and
beverages. Core operating profit declined 20% year over year in
constant currency due to strong year-ago comparisons, which
included a gain on sale of a business.
Adjusted earnings were $4.10 per share, which beat the Zacks
Consensus Estimate of $4.06 by a 1%. Adjusted earnings declined
5.0% from the prior year in constant currency in line with
In fiscal 2012, the company witnessed a 1.5% decline in
revenues to $65.49 billion, slightly beating the Zacks Consensus
Estimate of $65.29 billion. Organically, however, revenue grew
5%, in line with management expectation of growth in low single
PepsiCo projects core constant currency earnings to increase
in 2012 by 7% from 2011 core earnings of $4.10. The target is in
line with management's long term goal of high-single-digit core
constant currency earnings growth. Currency headwinds are
expected to reduce earnings growth by upto 1%, less than in
Excluding headwinds from currency and re-franchising of the
beverage business in China and Mexico, organic revenues are
expected to grow in the mid single digits, also in line with the
long-term targets. These structural changes are expected to pull
down organic revenue by 1%.
Commodity inflation is expected to be in the low-single digit
range in 2013. The company expects its advertising/ marketing
expense to increase at a rate higher than revenue. The core tax
rate is expected to be approximately 27% for 2013.
PepsiCo plans to reinvest any excess earnings to support brand
building, innovation and improve productivity, especially in the
U.S. Productivity savings are expected to amount to $900 million
New Share Buyback Program and Dividend
Moreover, the company announced a new share buyback program
worth $10 billion. The shares will be re-purchased between Jun
2013 and Jun 2016 after the current share repurchase program
expires in June. The company also increased its annual dividend
rate by 5.6% to $2.27 per share from $2.15 per share. The
increased dividend will be first paid in June this year.
PepsiCo currently carries a Zacks Rank #3 (Hold). Unlike
strong results by PepsiCo, rival,
The Coca-Cola Company
) reported mixed fourth quarter results this week; beating on
earnings and lagging on sales. Yesterday, another beverage
Dr Pepper Snapple
) announced dismal fourth quarter results missing Zacks
expectations for both revenue and earnings.
You may consider investing in one of Coca-Cola's bottling
Coca-Cola Hellenic Bottling Company S.A
) which carries a Zacks Rank #2 (Buy).
COCA COLA HELNC (CCH): Free Stock Analysis
DR PEPPER SNAPL (DPS): Free Stock Analysis
COCA COLA CO (KO): Free Stock Analysis Report
PEPSICO INC (PEP): Free Stock Analysis Report
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