PepsiCo (PEP) Q4 2015 earnings summary

Executive summary

• 2015 organic revenue grew 5% and core constant-currency EPS rose 10% to $4.57; full-year financial goals were met or exceeded despite volatile macro conditions.

• Reported revenue fell 5% and reported diluted EPS fell 14%, amid FX pressure and Venezuela-related charges.

• Core operating margin expanded 30 bps; market share was held or gained in most key markets, while brand, innovation and supply-chain investment continued.

Financial highlights

• Q4 organic revenue grew 4%; reported net revenue fell 7% to $18.585B, including an 8-point unfavorable FX impact.

• Q4 reported operating profit rose 10% to $2.240B; net income attributable to shareholders rose 31% to $1.718B and diluted EPS rose 35% to $1.17.

• FY reported net revenue declined 5% to $63.056B; operating profit fell 13% to $8.353B, net income fell 16% to $5.452B and diluted EPS fell 14% to $3.67.

• FY operating cash flow was $10.6B and free cash flow was $8.1B excluding specified items; core net income-to-free-cash-flow conversion was 120% excluding certain items.

• FY core gross margin expanded 140 bps and core operating margin expanded 30 bps; reported gross margin expanded 130 bps while reported operating margin declined 110 bps.

Outlook and guidance

• 2016 organic revenue growth expected at ~4%, excluding the 53rd week; FX expected to reduce reported revenue growth by 4 points and the extra week to add ~1 point.

• 2016 core EPS guidance is $4.66, reflecting 8% core constant-currency EPS growth excluding Venezuela deconsolidation, offset by 2 points from Venezuela and 4 points from FX.

• Productivity savings expected at ~$1B in 2016, within a $5B five-year objective through 2019; commodity costs expected to show low-single-digit deflation before transaction FX.

• 2016 operating cash flow expected above $10B, free cash flow above $7B excluding specified items, and net capital spending near $3B.

• Guidance incorporates Venezuela deconsolidation comparisons, a difficult Q1 AMENA comparison from an India bottling refranchising gain, and the 53rd week in Q4.