Soft drinks have been a hit among people from all age groups. PepsiCo (PEP, Financial) has been playing well in the beverage industry. Over the years, this company has also provided a decent return to its valued investors. PepsiCo is one of the world's leading food and beverage companies with over $66 billion in net revenue in 2013 and a global portfolio of diverse and beloved brands.
The company has a diversified line of products to offer to its consumers. With over 22 brands in its kitty, PepsiCo's products are sold in more than 200 countries and territories around the world.
Third-quarter report card
Core EPS increased 10 percent to $1.36. Core constant currency EPS increased 11 percent. Reported EPS increased 7 percent to $1.32 Organic revenue grew 3.1 percent. Reported net revenue grew 2 percent, reflecting the impact of foreign exchange translation Core gross margin expanded 45 basis points, and reported gross margin increased 55 basis points.
"We delivered good third quarter results in the face of an ongoing challenged macroeconomic environment driven by increasing volatility in the emerging markets and continued sluggish consumer demand in developed markets,” said Chairman and CEO Indra Nooyi.
“Our organic revenue grew three percent and we achieved positive effective net pricing through strong price/pack revenue management. Together with our relentless focus on productivity, this translated to both gross margin and operating margin expansion.
“We achieved these results because our brands are strong, our product portfolio is on trend, our geographic footprint is broad and diverse, and we are executing well in the marketplace.
“Based on the strength of our year-to-date results and our outlook for the remainder of the year, we are raising our full-year, core constant currency EPS growth target to nine percent.”
Developing and emerging market organic revenue grew 8 percent. On a reported basis, developing and emerging market net revenue grew 3 percent, reflecting unfavorable foreign exchange translation.
Cash flow provided by operating activities was $6.7 billion year to date. Free cash flow (excluding certain items) was $5.4 billion year to date.
The company expects to return a total of $8.7 billion to shareholders in 2014 through approximately $3.7 billion in dividends and $5.0 billion in share repurchases.
Regionwise summary
Frito-Lay North America
Organic and reported net revenue increased 3% (a 2% increase from organic volume and 1% point of effective net pricing).
Latin America Foods
Organic revenue grew 9 percent, reflecting 12 percentage points of effective net pricing, partially offset by a 2.5 percent organic volume decline.
Core constant currency operating profit increased 15 percent reflecting the organic revenue growth and productivity gains, partially offset by operating cost and commodity cost inflation.
Quaker Foods North America
Organic revenue declined 2 percent reflecting volume declines. Reported net revenue declined 3 percent, reflecting a 0.5-percentage-point unfavorable foreign exchange translation impact.
Quaker gained value share in the quarter in each of its core categories in the U.S., which include hot cereal, ready-to-eat cereal and snack bars.
PepsiCo Americas Beverages
Organic and reported net revenue were even, reflecting even organic volume. During the quarter, PAB maintained its liquid refreshment beverage value market share position in the U.S. in measured channels.
In North America, non-carbonated beverage volume grew slightly and carbonated soft drink volume declined 1.5 percent. Latin America organic beverage volume increased 2.5 percent. Core constant currency operating profit increased 4 percent, reflecting lower commodity costs, productivity gains, and effective net pricing, partially offset by operating cost inflation.
Europe
Organic revenue grew 1 percent, reflecting 2 percentage points of effective net pricing and volume growth of 2 percent in snacks partially offset by a 2 percent volume decline in beverages. Reported net revenue declined 1 percent, reflecting a 3-percentage-point unfavorable foreign exchange translation impact. Core constant currency operating profit declined 6 percent, reflecting operatingand commodity cost inflation and the impairment charge, partially offset by productivity savings.
Asia, Middle East & Africa
Organic and reported net revenue grew 11 percent driven by 11 percent volume growth in snacks and 3 percent volume growth in beverages.
(Source: Company’s Website)
What to expect
The management of the company is currently focusing on product innovation and cost cutting initiatives. It is also making concerted efforts in marketing its products well across the globe. It is constantly pumping up promotions in the African, Middle East, and Asian regions. Higher sales have been triggered with new packaging.
The company is already expanding its base in emerging economies like India and China, much in line wit its rival Coca-Cola (KO, Financial). This is going to help PEP to reduce its sole dependence on the U.S. for its revenues. The top line of this company is making rigorous expansions.
To end
People are now much more health conscious as the rate of obesity is accelerating at a great pace. Sugar, being the most important ingredient of soft drinks, is the main contributor to obesity. Health consciousness has paved the way to a decline in the consumption of carbonated soft drinks and diet soda in the U.S. market. The only reason for this is health problems such as weight gain, poor dental health, diabetes and cardiovascular disease. However the company is making efforts to change this scenario. It is making strategic moves to improve its position and get desirable to its investors.
There is an indication that the company will keep its history of consistently increasing dividends. With the recent details of its financials, PEP is expected to quench the thirst of its consumers in times to come. Pepsi is one of the world's most iconic and recognized consumer brands globally. Today, the Pepsi portfolio includes three products –Â Pepsi, Diet Pepsi and Pepsi MAX — that each generates more than $1 billion in annual retail sales.
An increasingly evolving middle class, higher disposable incomes and changing lifestyles are key factors that will fuel growth of this company in the beverage industry. PEP offers constantly growing dividends with stable price appreciation. The company also backed its return with a solid financial position.
