PepsiCo (PEP) Q1 2015 earnings summary

Executive summary

• Organic revenue grew 4.4%, while reported net revenue fell 3% to $12.217B as FX translation reduced growth by 8 percentage points.

• Core constant-currency operating profit rose 8%, or 11% excluding specified items; core constant-currency EPS increased 12%.

• Reported diluted EPS increased 3% to $0.81; core EPS was $0.83, up 1%.

• Total servings increased 1%; reported operating profit declined 1%, while operating margin rose 0.4 percentage points to 14.7%.

Financial highlights

• Net revenue was $12.217B versus $12.623B; gross profit was $6.775B versus $6.876B, and operating profit was $1.797B versus $1.807B.

• Core gross margin expanded 150 bps; core constant-currency operating profit growth benefited from pricing, productivity and marketplace execution amid FX headwinds.

• Effective net pricing and planned cost reductions partly offset unfavorable FX, higher commodity costs and other operating cost increases; commodity inflation reduced operating profit growth by 5 percentage points.

• Net income attributable to shareholders was $1.221B versus $1.216B.

Outlook and guidance

• FY15 targets reaffirmed: mid-single-digit organic revenue growth and 7% core constant-currency EPS growth versus FY14 core EPS of $4.63.

• FX translation expected to reduce FY15 net revenue growth by ~10 percentage points and core EPS growth by ~11 percentage points.

• FY15 cash flow from operations expected above $10B and free cash flow above $7B; net capital spending expected at ~$3B.

• Guidance included low- to mid-single-digit commodity inflation, ~$1B in productivity savings, higher interest expense and a ~25% core effective tax rate.