Business context and reporting period
PepsiCo, Inc. filed this Form 10-K for the fiscal year ended December 31, 2022. It is an annual report, not a standalone fourth-quarter report; fiscal 2022 included a 53rd reporting week. PepsiCo is a global beverage and convenient-food company operating through seven reportable divisions and serving more than 200 countries and territories.
Key financial results
| Metric | 2022 | 2021 | Change |
|---|---|---|---|
| Net revenue | $86.392 billion | $79.474 billion | +9% |
| Organic revenue growth (non-GAAP) | 14% | Pricing +14%; volume approximately flat | |
| Gross profit | $45.816 billion | $42.399 billion | |
| Operating profit | $11.512 billion | $11.162 billion | +3% |
| Operating margin | 13.3% | 14.0% | Down 0.7 percentage points |
| Net income attributable to PepsiCo | $8.910 billion | $7.618 billion | +17% |
| Diluted EPS | $6.42 | $5.49 | +17% |
| Core diluted EPS (non-GAAP) | $6.79 | $6.26 | +9%; +11% at constant currency |
| Cash from operations | $10.811 billion | $11.616 billion | Down 7% |
| Free cash flow (non-GAAP) | $5.855 billion | $7.157 billion | Down 18% |
Higher pricing and productivity savings supported revenue and operating results, while commodity, packaging, transportation and labor costs pressured margins. Core operating profit was $12.325 billion, up 8% (10% at constant currency), excluding specified comparability items.
Liquidity, debt and capital allocation
- Year-end cash and cash equivalents were $4.954 billion, with short-term investments of $394 million. Current liabilities were $26.785 billion.
- Short-term debt was $3.414 billion and long-term debt was $35.657 billion, for total reported debt of $39.071 billion, versus $40.334 billion in 2021.
- Operating cash flow declined mainly because of unfavorable working-capital comparisons and higher cash tax payments. Capital spending rose to $5.207 billion from $4.625 billion.
- 2022 cash dividends were $6.172 billion and share repurchases were $1.500 billion. PepsiCo announced an expected 2023 shareholder return of approximately $7.7 billion: $6.7 billion in dividends and $1.0 billion in repurchases.
- Management said available operating cash flow, credit facilities and debt-market access should meet operating, investing and financing needs. No borrowings were outstanding under its revolving credit agreements at year-end.
Material changes and unusual items
- PepsiCo sold Tropicana, Naked and certain other juice brands to PAI Partners in early 2022 for approximately $3.5 billion in cash, retaining a 39% interest in Tropicana Brands Group. The transaction generated a $3.321 billion pre-tax gain; the after-tax benefit to PepsiCo was $2.888 billion, or $2.08 per diluted share. The divested businesses had approximately $3 billion of 2021 revenue.
- Reported results included $3.618 billion of impairment and other charges, including charges associated with the Russia-Ukraine conflict, brand portfolio changes and impairment testing. Separately, PepsiCo recorded $1.555 billion of impairment charges from quantitative assessments of certain indefinite-lived intangible assets; the SodaStream brand was a significant component.
- Russia-Ukraine conflict charges included $1.415 billion of pre-tax charges in Europe. PepsiCo said certain Ukraine operations remained suspended and it had suspended sales of Pepsi-Cola and certain other global beverage brands in Russia, while continuing to offer other products there.
- GAAP operating profit growth was affected by the Juice Transaction gain and substantial impairment and conflict charges. Therefore, reported growth and adjusted growth present materially different pictures of underlying performance.
Outlook, management commentary and risks
- Management expected significantly higher operating costs, including transportation, labor and commodity costs, to continue in 2023. It cautioned that passing cost increases to customers may reduce volume, revenue or margins.
- PepsiCo expanded its 2019 productivity plan through 2028 and expects total pre-tax charges of approximately $3.65 billion, including about $2.9 billion of cash expenditures. It expected approximately $600 million of both charges and cash expenditures in 2023.
- The company announced a 10% increase in its annualized dividend to $5.06 per share, expected to take effect with the June 2023 payment. This is a post-year-end announcement, not 2022 performance guidance.
- Key risks include persistent input-cost inflation and supply disruptions; currency fluctuations; geopolitical uncertainty and potential further Russia-Ukraine impacts; changing consumer preferences; competition and retail customer concentration; climate, water and packaging regulation; cybersecurity; and litigation, tax and regulatory matters.
- Walmart and its affiliates represented approximately 14% of 2022 consolidated net revenue. PepsiCo identified the loss of this customer as potentially materially adverse to its North American food and beverage divisions.
- The filing does not provide a clear numerical 2023 revenue or EPS guidance target in the text provided. PepsiCo cautioned that forward-looking statements are subject to risks and actual results may differ.
Important facts for investors to verify
- Separate the $2.08-per-share after-tax Juice Transaction benefit from recurring earnings; compare GAAP results with PepsiCo’s defined non-GAAP measures and their reconciliations.
- Track whether pricing can continue to offset input-cost inflation without weakening volume, and monitor the reported 2022 flat organic volume.
- Review cash conversion: operating cash flow fell 7% and free cash flow fell 18% while capital spending increased.
- Assess further impairment risk, particularly for SodaStream, whose carrying value was reduced to fair value and is sensitive to discount-rate and growth assumptions.
- Monitor developments in Russia and Ukraine, foreign-exchange effects, and the execution and cash costs of the productivity plan.
- Review debt maturities, refinancing costs and the sustainability of planned dividends and share repurchases alongside cash generation and investment needs.
- KPMG issued an unqualified opinion on the financial statements and internal control over financial reporting; the audit identified sales incentive accruals, certain intangible-asset valuations and unrecognized tax benefits as critical audit matters.