PepsiCo, Inc. — FY2015 Form 10-K
Reporting period: Fiscal year ended December 26, 2015. PepsiCo is a global food and beverage company operating through six reportable segments in more than 200 countries and territories. Fiscal 2015 comprised 52 weeks; its fourth quarter covered 16 weeks.
Financial performance
| Metric | FY2015 | FY2014 | Change |
|---|---|---|---|
| Net revenue | $63.056 billion | $66.683 billion | Down 5% |
| Gross profit | $34.672 billion | $35.799 billion | Down 3% |
| Operating profit | $8.353 billion | $9.581 billion | Down 13% |
| Operating margin | 13.2% | 14.4% | Down 1.2 percentage points |
| Net income attributable to PepsiCo | $5.452 billion | $6.513 billion | Down 16% |
| Diluted EPS | $3.67 | $4.27 | Down 14% |
| Net cash from operations | $10.580 billion | $10.506 billion | Up 1% |
| Free cash flow | $7.908 billion | $7.762 billion | Up 2% |
Gross margin was approximately 55.0%, compared with 53.7% in 2014. Free cash flow excluding specified items was $8.128 billion, down 2%. Management reported 5% organic revenue growth and 10% constant-currency growth in diluted EPS excluding listed comparability items; these are non-GAAP measures.
At year-end, cash and cash equivalents were $9.096 billion and short-term investments were $2.913 billion. Current assets were $23.031 billion versus current liabilities of $17.578 billion. Short-term obligations were $4.071 billion and long-term debt was $29.213 billion, up from $23.821 billion. Total liabilities were $57.637 billion. Capital spending was $2.758 billion. Cash dividends paid and common-share repurchases totaled approximately $9.0 billion.
Material changes and unusual items
- Revenue fell mainly because of unfavorable foreign exchange, which reduced reported revenue growth by 10 percentage points, and the Venezuela deconsolidation. Currency-adjusted organic revenue grew 5%.
- PepsiCo recorded a $1.359 billion Venezuela impairment charge ($0.91 per diluted share). Exchange controls and restrictions impaired operating control and access to currency; the company deconsolidated its Venezuelan subsidiaries and ceased equity-method accounting for its beverage joint venture at the end of Q3. Venezuela’s results were excluded from consolidated income beginning in Q4.
- Excluding listed comparability items, diluted EPS was $4.57 versus $4.63 in 2014. Items included the Venezuela impairment, restructuring charges, a $73 million write-off of the Tingyi-related call option, a $76 million Quaker joint-venture impairment, a $39 million India refranchising gain, and a $230 million non-cash tax benefit from an IRS agreement.
- Reported operating profit was pressured by foreign exchange, commodity costs, operating expenses and increased advertising and marketing. Productivity savings and pricing partly offset those effects. Productivity initiatives generated more than $1 billion of savings in 2015.
- For Q4, net revenue was $18.585 billion versus $19.948 billion in Q4 2014; net income attributable to PepsiCo was $1.718 billion versus $1.311 billion. The filing’s quarterly comparison includes unusual items and should not be read as a clean measure of underlying performance.
Outlook, risks and contingencies
- Management expected 2016 capital spending of approximately $3 billion and planned approximately $7 billion in shareholder returns: $3 billion in repurchases and $4 billion in dividends. It also announced a 7.1% increase in the annualized dividend to $3.01 per share, effective with the expected June 2016 payment.
- The company said it was on track for $5 billion in productivity savings over 2015–2019. It emphasized brand investment, innovation, more nutritious product choices, e-commerce and cost reduction. The supplied filing text does not provide a clear full-year 2016 revenue or EPS guidance figure.
- Key risks include currency volatility and restrictions, geopolitical and economic instability, changing consumer preferences and health-related regulation, commodity and water availability, competition, customer concentration, product safety, litigation, cyber incidents and access to capital markets. Wal-Mart and Sam’s Club represented approximately 13% of consolidated revenue.
- Contractual commitments totaled $45.216 billion, including debt, interest, leases, purchasing and marketing commitments. Management said ordinary-course legal, administrative and regulatory matters were not expected to have a material adverse effect; disclosed environmental sanctions in Poland remained under appeal. KPMG issued an unqualified audit opinion and concluded internal control over financial reporting was effective.
Investor verification priorities
- Reconcile reported and adjusted results, especially the $1.359 billion Venezuela impairment and the non-GAAP EPS and organic-growth measures.
- Assess the sustainability of revenue and operating trends by segment, separating currency, pricing, volume and portfolio effects.
- Review debt maturities, the increase in long-term debt, committed obligations and the planned balance of investment, dividends and repurchases.
- Track Venezuela’s operational and accounting status, and monitor currency, commodity and geopolitical exposures in Russia, Latin America and other markets.
- Check progress against the 2015–2019 productivity target and the expected 2016 capital spending and shareholder-return plans.