PepsiCo, Inc. — FY2021 Form 10-K
Reporting period: Fiscal year ended December 25, 2021; comparisons are with the fiscal year ended December 26, 2020. This is an annual report, not a standalone fourth-quarter filing. PepsiCo operates a global beverage and convenient-food business across seven reporting divisions and more than 200 countries and territories.
Financial performance
| Metric | FY2021 | FY2020 | Change |
|---|---|---|---|
| Net revenue | $79.474 billion | $70.372 billion | +13% reported; +10% organic |
| Gross profit / gross margin | $42.399 billion / 53.4% | $38.575 billion / 54.8% | Margin down about 1.5 points |
| Operating profit / margin | $11.162 billion / 14.0% | $10.080 billion / 14.3% | Profit +11%; margin down 0.3 points |
| Net income attributable to PepsiCo | $7.618 billion | $7.120 billion | +7% |
| Diluted EPS | $5.49 | $5.12 | +7% |
| Operating cash flow | $11.616 billion | $10.613 billion | +9% |
| Free cash flow | $7.157 billion | $6.428 billion | +11% |
Management attributed revenue growth to volume and effective pricing. Higher commodity, packaging, transportation and other operating costs pressured margins; reported operating profit also benefited from lower COVID-related charges than in 2020. Core diluted EPS, a company-defined non-GAAP measure, was $6.26, up 13% (12% on a constant-currency basis); it should be considered alongside GAAP EPS, not as a substitute.
Liquidity, debt and capital allocation
- Cash and cash equivalents were $5.596 billion and short-term investments were $392 million at year-end, down from $8.185 billion and $1.366 billion, respectively.
- Total debt obligations were approximately $40.3 billion: $4.308 billion short-term and $36.026 billion long-term, versus approximately $44.2 billion a year earlier. Current liabilities exceeded current assets; the reported current ratio was approximately 0.83.
- Net cash from financing activities was an outflow of $10.780 billion, including $5.815 billion of cash dividends and $4.844 billion for cash tender offers/debt redemption. The tender offers generated an $842 million pre-tax charge.
- PepsiCo reported no material liquidity deficiency and said operating cash generation, credit facilities and access to debt markets were expected to meet its needs. It had no borrowings under its $3.75 billion five-year or $3.75 billion 364-day revolving credit agreements at year-end.
Material changes and unusual items
- Reported operating margin declined as higher commodity costs more than offset revenue growth and productivity savings. Division results varied: QFNA operating profit fell 14% amid lower volume and higher costs; Europe operating profit fell 4.5%; PBNA rose 26%, while LatAm rose 33% and AMESA rose 43% (the latter included acquisition-related comparability effects).
- 2021 net interest expense and other rose to $1.863 billion from $1.128 billion, primarily reflecting the $842 million tender-offer charge. The annual tax rate increased to 21.8% from 20.9%, in part due to IRS-audit-related tax adjustments.
- PepsiCo recorded $190 million of net tax expense related to the Tax Cuts and Jobs Act. Its mandatory transition-tax liability was $2.9 billion, payable through 2026; about $309 million was expected to be paid in 2022.
- In the first quarter of 2022, PepsiCo completed the sale of Tropicana, Naked and certain other juice brands for approximately $3.5 billion in cash, retaining a 39% interest in a new joint venture. The businesses generated approximately $3 billion of 2021 revenue. Management expected a pre-tax gain of approximately $3 billion in 2022; this is a subsequent event, not FY2021 income.
Outlook, commentary and risks
- The filing does not provide a clear numerical 2022 revenue or earnings guidance target. Management expected elevated commodity and transportation costs to continue into 2022 and warned that cost increases may not be fully passed through to customers without affecting volume or margins.
- The 2019 productivity plan was extended through 2026. Expected total pre-tax charges increased to approximately $3.15 billion, including approximately $2.4 billion in cash expenditures; about $350 million of pre-tax charges, including $300 million cash, was expected in 2022.
- Management’s pep+ strategy centers on sustainability, agriculture, value-chain transformation and evolving product choices. The company cited goals including net-zero emissions by 2040 and net water positive by 2030.
- Principal risks include continuing COVID-19 effects, supply-chain and labor disruption, inflation and commodity volatility, foreign-exchange exposure, changing consumer preferences, competition, customer concentration, water scarcity, climate-related impacts, cybersecurity and regulatory changes involving product taxes, labeling and packaging.
- Walmart and its affiliates represented approximately 13% of consolidated net revenue in 2021. A fourth-quarter ERP implementation temporarily disrupted U.K. operations; PepsiCo said operations had resumed by year-end. Management and the auditor reported effective internal control over financial reporting.
- Legal proceedings were described as varied and uncertain; management did not expect their final outcomes to have a material adverse effect on financial condition, results or cash flows.
Key facts investors should verify
- Whether pricing and volume can sustain organic growth while commodity and logistics inflation eases or is offset, and how that affects gross and operating margins.
- The cash-flow and earnings effects of the 2022 juice-brand divestiture, including the realized gain, retained joint-venture economics and transition costs.
- Debt maturities, interest costs and liquidity after the 2021 tender offers, alongside planned dividends and share repurchases.
- Progress and remaining cash costs under the expanded productivity plan, and whether expected savings materialize.
- Resolution of the IRS audit and other tax uncertainties, including the $2.9 billion transition-tax liability and $1.9 billion of gross unrecognized tax benefits.