PepsiCo (PEP) Q2 2018 earnings summary

Executive summary

• Q2 net revenue was $16.09B, up 2.4% reported and 2.6% organically; core EPS was $1.61, up 7% on a constant-currency basis, while reported diluted EPS fell 13%.

• International divisions delivered strong operating profit growth, while North America Beverages remained pressured by transportation and commodity costs.

Financial highlights

• Q2 operating profit rose 4% to $3.03B; operating margin was 18.8% versus 18.6% a year earlier.

• Net income attributable to shareholders fell 14% to $1.82B; diluted EPS declined 13% to $1.28.

• Adjusted diluted EPS was $1.61 versus $1.50, up 8%; constant-currency growth was 7%. H1 adjusted EPS was $2.58 versus $2.44.

• H1 net revenue grew 3.2% reported and 2.5% organically; reported EPS was $2.21, down 7%, versus core EPS of $2.58, up 6%.

• H1 operating cash flow was $1.09B and free cash flow was $185M, primarily reflecting the $1.4B U.S. pension contribution.

Outlook and guidance

• FY18 organic revenue growth was expected to be at least in line with 2017’s 2.3%; core EPS guidance remained $5.70, up 9% from $5.23 in 2017.

• Core effective tax rate was expected in the low 20s; FX was expected to have a neutral impact on revenue and EPS at prevailing market-consensus rates.

• FY18 operating cash flow was guided at ~$9B and free cash flow at ~$6B, assuming ~$3.6B net capital spending and a $1.4B discretionary pension contribution.

• Earnings growth was expected to be substantially higher in Q4 than Q3, reflecting investment timing and disaster comparisons; Czech Republic, Hungary and Slovakia refranchising was expected to benefit Q4.