PepsiCo (PEP) Q4 2016 earnings summary

Executive summary

• 2016 met or exceeded financial goals: organic revenue grew 3.7%, core operating margin expanded 80 bps, and core constant-currency EPS rose 9%.

• Results balanced top-line growth and productivity gains with continued investment in capabilities and infrastructure for long-term returns.

Financial highlights

• Q4 net revenue rose 5.0% to $19.5B; organic revenue grew 3.7%, while FX reduced reported growth by 2 points and the 53rd week added 3.5 points.

• Q4 reported operating profit increased 6%; core constant-currency operating profit rose 15%. Reported EPS fell 17% to $0.97; core EPS was $1.20, up 13%, or 15% in constant currency.

• FY reported revenue declined 0.4% to $62.8B while organic revenue grew 3.7%; FX and Venezuela deconsolidation reduced reported revenue growth by 3 and 2 points, respectively.

• FY reported operating profit increased 17% to $9.8B; core constant-currency operating profit grew 7%. Reported EPS rose 19% to $4.36; core EPS was $4.85, up 6%.

• FY operating cash flow was $10.4B and free cash flow excluding specified items was $7.8B, above the $7B goal; core net ROIC rose 190 bps to 21.5%.

Outlook and guidance

• 2017 organic revenue growth expected to be at least 3%; FX translation was expected to reduce reported revenue growth by 3 points, with the 2016 53rd week reducing it by 1 point.

• 2017 core EPS expected at $5.09, reflecting 8% core constant-currency growth and a 3-point FX headwind.

• Core effective tax rate expected at 24%; operating margin expansion expected to continue, weighted more toward SG&A than cost of goods.

• Q1 organic revenue and core EPS growth expected below full-year guidance due to AMENA volatility, holiday timing, difficult profit comparisons, and FX headwinds.

• Productivity savings expected at ~$1B in 2017, supporting margin expansion; raw-material inflation was expected to increase, particularly in H1.