Business context and reporting period
PepsiCo, Inc. filed this unaudited Form 10-Q for the 12 weeks ended March 25, 2023. The comparable period ended March 19, 2022. PepsiCo reports seven divisions spanning beverages and convenient foods; international results in each period include January and February. The interim results are not necessarily indicative of full-year results.
Key financial metrics
| Metric | Q1 2023 | Comparable period | Change / context |
|---|---|---|---|
| Net revenue | $17.846 billion | $16.200 billion | Up 10% reported; organic revenue growth was 14%, with 16% effective net pricing and 2% lower organic volume. Foreign exchange reduced reported growth by 2.5 percentage points. |
| Gross profit / margin | $9.858 billion / 55.2% | $8.767 billion / 54.1% | Margin calculated from reported figures. |
| Operating profit / margin | $2.629 billion / 14.7% | $5.267 billion / 32.5% | Down 50%; prior year included a $3.322 billion gain on the Juice Transaction. |
| Net income attributable to PepsiCo | $1.932 billion | $4.261 billion | Down 55%; prior-year juice-sale gain materially affects comparison. |
| Diluted EPS | $1.40 | $3.06 | Down 54%. Core diluted EPS, a non-GAAP measure, was $1.50 versus $1.29, up 16%; constant-currency growth was 18%. |
| Operating cash flow / free cash flow | $(392) million / $(954) million | $(174) million / $(693) million | Both were negative; management attributed the operating cash-flow decline primarily to unfavorable working-capital comparisons. |
| Cash, cash equivalents and short-term investments | $5.204 billion | $5.348 billion at Dec. 31, 2022 | Balance-sheet cash and equivalents were $4.770 billion; short-term investments were $434 million. |
| Debt obligations | $41.767 billion | $39.071 billion at Dec. 31, 2022 | Comprises $4.281 billion short-term and $37.486 billion long-term debt. Commercial paper outstanding was $800 million. |
| Dividends and repurchases | $1.608 billion dividends paid; $160 million share repurchases | $1.505 billion; $193 million | Quarterly dividend declared was $1.15 per share. |
Material changes and operating performance
- Reported revenue increased, driven principally by pricing; organic volume declined 2%. Pricing and productivity savings partly offset higher input and operating costs.
- Core operating profit was $2.802 billion versus $2.392 billion, a 17% increase. The gap between reported and core results reflects the prior-year juice-sale gain and other items affecting comparability.
- Revenue grew across most divisions; APAC reported a 1% decline. Europe volume fell, with weakness in Russia, Ukraine and other markets. AMESA reported strong beverage volume but declining convenient-food volume and significant currency headwinds.
- Operating cash use and free cash flow use increased year over year. Cash from financing included $3.0 billion of long-term debt issuance and approximately $0.9 billion of net short-term borrowings.
- At March 25, current liabilities exceeded current assets: $25.837 billion versus $22.427 billion. The current ratio was approximately 0.87.
Outlook, commentary and risks
- Management said transportation, labor and commodity costs remained significantly elevated and expected them to continue for the remainder of 2023. Pricing may not fully offset cost increases without affecting volumes, revenue or margins. The filing text provided does not give a clear numerical full-year revenue or earnings forecast.
- PepsiCo expected to return approximately $7.7 billion to shareholders in 2023: about $6.7 billion in dividends and $1.0 billion in repurchases. The company announced a 10% increase in its annualized dividend to $5.06 per share, effective with the dividend expected in June 2023.
- The productivity plan, extended through 2028, is expected to generate approximately $3.65 billion in total pre-tax charges, including about $2.9 billion in cash expenditures. Through the quarter, approximately $1.6 billion of charges had been incurred. For the remainder of 2023, management expected approximately $475 million of charges and $500 million of cash expenditures; most remaining charges and expenditures were expected in 2023–2024.
- Management cited the Ukraine conflict, inflation, commodity and supply-chain exposure, foreign exchange, labor availability, climate and packaging regulation, product taxes, cybersecurity, retail-channel change and potential credit-rating downgrades among risks. Some operations in Ukraine remained suspended; PepsiCo had suspended sales of Pepsi-Cola and certain other global beverage brands, discretionary capital investment and advertising and promotion in Russia, while continuing to sell other products there.
- The company reported no material liquidity deficiency related to the conflict and believed available operating cash, credit facilities and debt markets would meet its needs. Its $2.6 billion mandatory transition-tax liability is payable through 2026. Supply-chain finance obligations included $1.9 billion of accounts payable at quarter-end; PepsiCo said the arrangements did not materially affect liquidity.
- Management believed pending litigation and proceedings would not have a material adverse effect. No material risk-factor changes from the 2022 Form 10-K were reported. The independent accountant performed an interim review, not an audit, and reported no material modifications were needed for GAAP conformity.
Important facts for investors to verify
- Separate ongoing operating trends from the prior-year $3.322 billion Juice Transaction gain and other comparability adjustments; review the company’s non-GAAP reconciliations.
- Track volume, pricing and input-cost trends, especially whether pricing can offset costs without further volume or margin pressure.
- Monitor working capital and cash conversion: operating cash flow and free cash flow were negative in the quarter.
- Assess debt growth, upcoming maturities, commercial-paper access and the ability to fund dividends, repurchases and capital spending.
- Follow foreign-exchange exposure and developments in Russia, Ukraine and other affected markets, including possible impairments or operating disruptions.
- Compare productivity-plan charges and cash expenditures with management’s stated estimates and expected timing.