PepsiCo (PEP) Q3 2018 earnings summary

Executive summary

• Q3 net revenue was $16.485B, up 1.5%; organic revenue grew 4.9%, the highest rate in 12 quarters.

• Core diluted EPS was $1.59, up 7% YoY and 9% on a constant-currency basis.

• International core constant-currency operating profit rose 12%, supported by broad-based growth across key markets.

Financial highlights

• Q3 net income attributable to shareholders rose 16% to $2.498B; reported diluted EPS increased 18% to $1.75, including audit-related tax benefits.

• Q3 operating profit fell 3% to $2.84B; core constant-currency operating profit increased 2%.

• For the first 36 weeks, revenue increased 3% to $45.137B, net income rose 2% to $5.661B, and core EPS increased 6% to $4.17.

• 36-week operating cash flow was $4.7B and free cash flow was $3.27B, reflecting discretionary pension and retiree medical contributions.

Outlook and guidance

• FY2018 organic revenue growth guidance was raised to at least 3%; core EPS guidance was $5.65, up 8%, with a 1-point FX headwind. Core constant-currency EPS growth remained 9%.

• Core effective tax rate was expected at 19%–20%; Q4 FX translation was expected to reduce net revenue and operating profit by ~3 percentage points each.

• FY2018 operating cash flow was expected at ~$9B and free cash flow at ~$6B, including a $1.4B discretionary pension contribution and ~$3.3B net capital spending.

• Expected FY shareholder returns were ~$7B: ~$5B in dividends and ~$2B in share repurchases.