PepsiCo, Inc. reported net revenue growth of 4 percent and constant currency net revenue growth of 5 percent. Reported EPS was $0.71 and core EPS was $0.69, in line with management's expectations. Management reaffirmed both its 2012 core constant currency EPS guidance and long-term financial targets and stated that its 2012 strategic initiatives are on track.
"Our first quarter results reflect the strength of our brands which allowed us to implement significant pricing actions," said PepsiCo Chairman and CEO Indra Nooyi. "Effective pricing and packaging initiatives drove 5 percent constant currency net revenue growth, allowing us to substantially offset approximately $300 million in commodity cost inflation."
"With disciplined pricing now in place, we're doubling our focus on the other key initiatives for 2012. Our top priorities include stepping up our brand support through increased advertising and marketing, accelerating our innovation, and driving an aggressive productivity agenda that includes a significant restructuring program.
"All of these initiatives were launched in Q1 with good results, are on track, and will gain momentum as the year progresses. We're executing on a clear, deliberate game plan that will enhance our competitiveness while also positioning PepsiCo for sustainable growth and value creation for the long term."
Operating and marketplace highlights
- Grew net revenue in three of our four business units on a reported basis and grew net revenue in all four business units on an organic basis.
- Achieved 5.5 points of effective net pricing globally.
- Grew both global snacks and global beverage revenue. Grew global nutrition revenue 10 percent.
- Grew net revenue 9 percent in emerging markets. Emerging market net revenue grew 13 percent on a constant currency basis.
- Held LRB value share to maintain our leadership in measured channels relative to primary competitor in the U.S., the largest global beverage market.
- Increased media spending in the U.S. by 25 percent in the first quarter.
- Ranked No. 1 for contribution to revenue growth in U.S. convenience stores.
- Gained Family Dollar, a leading retailer with more than 7,000 outlets in North America, as a new beverage customer.
- Completed strategic alliance with Tingyi, China's largest beverage manufacturer, on March 31. China is the world's second largest LRB market and the alliance creates a system with a relative market share of 1.6 times the next largest competitor's position. The alliance also creates the country's largest LRB manufacturing network with more than 70 plants.
- Net capital spending declined by $122 million in the quarter and was 4.7 percent of net sales over the last four quarters, an improvement of 80 basis points over the comparable prior four quarters.
Summary of first quarter financial performance
- Reported net revenue increased 4 percent and constant currency net revenue increased 5 percent, led by double-digit growth in the Europe and AMEA divisions and mid-single-digit growth in PepsiCo Americas Foods.
- Net revenue benefited from 5.5 percentage points of effective net pricing, offset by negative foreign currency translation of 1 percentage point. Acquisitions contributed less than 1 percentage point to net revenue growth.
- Reported operating profit was flat and core operating profit declined 6 percent. Operating profit performance was in line with management's expectations and reflected the impact of division operating profit performance and higher corporate unallocated expenses. Reported operating profit included $84 million in mark-to-market gains on commodity hedges and $35 million of restructuring, impairment and integration charges.
- Division operating profit declined 1 percent and core division operating profit declined 2 percent. Division operating profit performance reflected net revenue growth, which was substantially offset by approximately $300 million of commodity cost inflation.
- Net interest expense was $175 million, an increase of $12 million, primarily driven by higher debt balances.
- Reported effective tax rate was 26.7 percent, 10 basis points below the prior year quarter. Core effective tax rate was 26.7 percent, 70 basis points above the prior year quarter, reflecting geographic mix shift and the favorable resolution of certain tax matters in the first quarter of 2011.
- Reported EPS of $0.71 was even with the prior year quarter and core EPS was $0.69, a decline of 7 percent, in line with management's expectations. Reported EPS includes a $0.04 per share benefit from mark-to-market net gains on commodity hedges, and a negative $0.01 per share impact of restructuring, impairment and integration charges.
- A $1 billion pretax discretionary pension and retiree medical payment in the quarter contributed to an operating cash flow use of $690 million. Management operating cash flow (excluding certain items) was $79 million in the quarter. The company returned almost $1 billion to shareholders through dividends and share repurchases in the quarter, and expects to return more than $6 billion to shareholders for the full year 2012.