PepsiCo (PEP) Q4 2017 earnings summary

Executive summary

• FY 2017 reported revenue rose 1.2% to $63.525B; organic revenue grew 2.3%, and core EPS increased 8% reported and 9% in constant currency to $5.23.

• Q4 organic revenue grew 2.3%; core constant-currency operating profit rose 6% and core constant-currency EPS rose 8% to $1.31.

• FY GAAP diluted EPS fell 23% to $3.38; Q4 recorded a $0.50 loss per share, primarily reflecting a $2.5B provisional tax expense.

• Management emphasized balancing growth, productivity and reinvestment amid shifting consumer preferences and retail disruption.

Financial highlights

• FY operating profit was $10.509B, up 7%; net income attributable to PepsiCo was $4.857B, down 23%.

• Q4 net revenue was $19.526B, essentially flat; operating profit rose 9% to $2.593B, while net income attributable was a $710M loss.

• FY operating cash flow was $10.0B and free cash flow excluding certain items was $7.3B; Q4 operating cash flow was $3.9B.

• FY gross margin contracted 40 bps reported and 30 bps core; operating margin expanded 95 bps reported and 45 bps core.

• Core net ROIC expanded 140 bps to 22.9%; $6.5B was returned to shareholders through dividends and repurchases.

Outlook and guidance

• 2018 organic revenue growth expected to be at least 2.3%; core EPS guided to $5.70, up 9% from 2017's $5.23.

• Core tax rate expected in the low 20s; lower taxes substantially offset by increased investment spending.

• 2018 organic revenue and core constant-currency EPS growth expected higher in H2 than H1; Q4 expected to have the largest year-over-year core tax-rate benefit.

• 2018 operating cash flow expected at ~$9B and free cash flow at ~$6B, including ~$3.6B net capital spending and a $1.4B discretionary pension contribution.