PepsiCo, Inc. — Q1 2024 Form 10-Q
Reporting period: 12 weeks ended March 23, 2024; comparison is the 12 weeks ended March 25, 2023. Financial amounts are in millions of dollars unless otherwise noted. Interim results are unaudited and are not necessarily indicative of full-year results.
Financial performance
| Metric | Q1 2024 | Q1 2023 | Change |
|---|---|---|---|
| Net revenue | $18,250 | $17,846 | +2% |
| Gross profit | $10,002 | $9,858 | +1% |
| Operating profit | $2,717 | $2,629 | +3% |
| Operating margin | 14.9% | 14.7% | +0.2 percentage points |
| Net income attributable to PepsiCo | $2,042 | $1,932 | +6% |
| Diluted EPS | $1.48 | $1.40 | +6% |
| Net cash used in operating activities | $1,041 | $392 | Cash use increased |
| Free cash flow (non-GAAP) | $(1,648) | $(954) | Cash use increased |
Organic revenue growth was 3%: organic volume declined 2%, while effective net pricing contributed 5%. Management attributed operating profit growth mainly to pricing and productivity savings, partly offset by operating cost increases, weaker organic volume, and the Quaker recall. The reported tax rate fell to 20.2% from 21.9%, primarily reflecting prior-year reserves for international unrecognized tax benefits.
Operating cash flow weakened mainly because of unfavorable working-capital comparisons, including cash outflows for accounts payable and other current liabilities. Capital spending was $614; cash dividends paid were $1,767 and share repurchases were $146.
Segments and notable changes
- Frito-Lay North America: Revenue +2%; operating profit down 3%. Unit volume fell 2%.
- Quaker Foods North America: Revenue fell 24% and the segment recorded a $49 operating loss, versus $188 operating profit a year earlier. Volume fell 22%; results included $167 of pre-tax recall-related costs.
- PepsiCo Beverages North America: Revenue +1%; operating profit +5.5%. Unit volume fell 5%, including declines in carbonated and non-carbonated beverages.
- Latin America: Revenue +16% and operating profit +33%, with favorable pricing and foreign exchange contributing.
- Europe: Revenue +3% and operating profit increased to $202 from $71; lower restructuring charges contributed significantly to the profit comparison.
- AMESA: Revenue +2%; operating profit down 10%.
- APAC: Revenue +6%; operating profit +3%.
Foreign exchange reduced consolidated reported revenue growth by 0.5 percentage points. PepsiCo reported an unrealized $691 gain on its Celsius investment in other comprehensive income; this was not included in net income. The company also recorded a $167 pre-tax Quaker recall charge ($128 after tax, or $0.09 per share).
Liquidity, debt and capital allocation
At March 23, 2024, cash and cash equivalents were $8,047 and short-term investments were $303. Current assets were $26,005 versus current liabilities of $30,234. Short-term debt was $8,161 and long-term debt was $37,707; commercial paper outstanding was $3.6 billion. Debt obligations’ fair value was reported as $42 billion. The company issued $1.8 billion of long-term notes and repaid $1.3 billion of long-term debt during the quarter. Management said cash generation, credit facilities and access to debt financing should be adequate for operating, investing and financing needs.
PepsiCo expects to return approximately $8.2 billion to shareholders in 2024: approximately $7.2 billion in dividends and $1.0 billion in share repurchases. It announced a 7% increase in its annualized dividend to $5.42 per share, effective with the dividend expected in June 2024. The filing does not provide a clear full-year revenue or EPS forecast in the supplied text.
Outlook, risks and contingencies
- Management reported continued higher transportation and labor costs, which may persist through the remainder of 2024. Commodity, packaging, energy and other input-cost volatility could pressure margins; passing costs on through pricing may reduce volume.
- Risks include geopolitical conflict and instability, foreign-exchange fluctuations, supply-chain disruption, product safety and recalls, changing consumer demand, retailer bargaining power, cyber incidents, climate-related requirements, and potential taxes or regulations on products and packaging.
- The Quaker recall affected QFNA sales and profit. The company also disclosed a $2.3 billion mandatory transition-tax liability payable through 2026.
- The 2019 productivity plan is expected to incur about $3.65 billion in total pre-tax charges, including approximately $2.9 billion in cash expenditures. About $2.0 billion of charges had been incurred through March 23, 2024; approximately $400 million of pre-tax charges and cash expenditures are expected during the remainder of 2024.
- Management said pending litigation and other proceedings are not expected to have a material adverse effect. No material changes to the risk factors in the 2023 Form 10-K were reported.
- The independent accountant performed an interim review, not an audit, and reported no material modifications needed for conformity with U.S. GAAP. Management stated disclosure controls were effective; ERP implementation materially affected internal control processes but was not reported to have adversely affected internal control over financial reporting.
Most important facts for investors to verify
- Whether the volume declines in North American beverages and foods stabilize, and whether pricing can offset input-cost pressure without further weakening demand.
- The continuing financial and operational effects of the Quaker recall, including recovery of sales and any additional costs or liabilities.
- Whether working-capital outflows and negative quarterly free cash flow normalize over the rest of the year.
- Debt maturities, commercial-paper funding needs, interest costs and the company’s capacity to meet its stated shareholder-return plans.
- How much of operating profit growth reflects recurring performance versus pricing, foreign exchange, restructuring comparisons and other adjustments; compare GAAP results with the company’s non-GAAP measures.
- Valuation sensitivity and future changes in the Celsius investment’s fair value, which is based partly on significant unobservable assumptions.