PepsiCo, Inc. — Q1 2021 Form 10-Q
Reporting period: 12 weeks ended March 20, 2021; comparison is the 12 weeks ended March 21, 2020. Amounts are in millions except per-share data. International results generally include January and February.
Financial results
| Metric | Q1 2021 | Prior period | Change |
|---|---|---|---|
| Net revenue | $14,820 | $13,881 | +7% |
| Organic revenue growth | 2% | Not stated here | — |
| Gross profit | $8,149 | $7,754 | +5% |
| Operating profit | $2,312 | $1,924 | +20% |
| Operating margin | 15.6% | 13.9% | +1.7 percentage points |
| Net income attributable to PepsiCo | $1,714 | $1,338 | +28% |
| Diluted EPS | $1.24 | $0.96 | +29% |
| Core diluted EPS, non-GAAP | $1.21 | $1.07 | +13%; +14% constant currency |
| Net cash used for operating activities | $(719) | $(749) | Less cash used |
| Free cash flow, non-GAAP | $(1,185) | $(1,228) | Less cash used |
Reported operating-profit growth materially exceeded adjusted growth: core operating profit increased 7% (also 7% on a constant-currency basis). Revenue growth reflected 4% effective net pricing and a 1% decline in organic volume, alongside acquisition and currency effects.
Liquidity, debt and capital allocation
At March 20, 2021, cash and cash equivalents were $5.7 billion and short-term investments were $1.0 billion. Short-term debt was $4.7 billion and long-term debt was $39.0 billion, for total debt obligations of $43.7 billion. Cash and short-term investments totaled $6.6 billion. Cash and restricted cash fell to $5.7 billion from $8.3 billion at year-end.
Investing activities provided $94 million, including $535 million of maturities of short-term investments, partly offset by $471 million of capital spending. Financing activities used $1.9 billion, including $1.4 billion of dividends and $396 million of net repayments of borrowings over three months or more. The company reported no commercial paper outstanding. It expects approximately $5.9 billion of shareholder returns in 2021: $5.8 billion in dividends and $106 million in share repurchases. PepsiCo announced a 5% increase in its annualized dividend to $4.30 per share, effective with the expected June 2021 payment, and said it did not expect further repurchases in 2021.
Business performance and notable changes
North America revenue grew in Frito-Lay North America (4%), Quaker Foods North America (2%) and PepsiCo Beverages North America (5%); each reported lower organic volume. Latin America revenue declined 5%, with foreign exchange reducing growth by 8 percentage points. Europe revenue declined 2%. Acquisition effects were significant in Africa, Middle East and South Asia and Asia Pacific: revenue increased 40% and 70%, respectively, with Pioneer Foods contributing 42 percentage points to AMESA growth and Be & Cheery contributing 44 points to APAC growth.
Management attributed higher operating profit primarily to pricing and productivity, partly offset by operating-cost increases, higher commodity costs and lower organic volume. The comparison also benefited from lower COVID-19-related charges than in the prior year ($61 million versus $143 million), higher commodity-derivative mark-to-market gains, and a $108 million unrealized gain on an investment. The investment gain added approximately 5 percentage points to reported operating-profit growth; PepsiCo said it sold the shares in Q2 2021 and expected to record a related $39 million pretax loss, net of discounts.
Outlook, risks and contingencies
The filing does not provide a clear full-year revenue or earnings guidance figure in the supplied text. PepsiCo said it expects to incur approximately $400 million of pretax charges, including about $300 million of cash expenditures, for the remainder of 2021 under its 2019 Productivity Plan. The plan is expected to total approximately $2.5 billion in pretax charges, including $1.6 billion in cash expenditures, and is expected to be completed by 2023.
Management said COVID-19 had not materially adversely affected sources or uses of cash in the quarter and identified no material liquidity deficiency, but emphasized continuing uncertainty around consumer demand and channels, supply chains, employee costs, customers and business partners. Other identified risks include foreign exchange, commodity and interest-rate exposure; geopolitical and economic conditions; taxes and regulation of products and packaging; retail and e-commerce shifts; cyber and operational disruptions; and litigation. The company had a $3.2 billion mandatory transition-tax liability payable through 2026 and $3.7 billion in non-cancelable purchasing commitments. Management believes pending legal matters will not materially adversely affect financial condition, results or cash flows. No material risk-factor changes from the 2020 Form 10-K were reported.
The 2019 Productivity Plan had incurred $840 million of charges through March 20, 2021. The quarter also included $43 million of restructuring and impairment charges and a net $10 million merger and integration credit. Interim results are not necessarily indicative of full-year results. The independent accountant performed a review of interim financial information, not an audit.
Important facts for investors to verify
- Separate recurring operating performance from reported growth, particularly the investment gain, commodity-derivative mark-to-market effects, acquisition contributions and lower COVID-19 charges.
- Track whether pricing and productivity can offset commodity, transportation and other operating-cost pressures while organic volume remains weak in several major divisions.
- Monitor operating cash generation and working-capital requirements against dividends, debt service, planned productivity spending and the transition-tax liability.
- Review progress and final valuation adjustments for Pioneer Foods, Rockstar and Be & Cheery, as well as the timing and cost of the productivity plan.
- Assess continued COVID-19 effects, currency movements and changes in consumer demand and sales channels; management cautions that these factors remain difficult to predict.