PepsiCo, Inc. reported results for the third quarter of 2016. "We are pleased with our results for the third quarter and year to date. We are executing our strategy well and managing what is in our control. Our product portfolio, geographic mix and capability centers are enabling us to deliver balanced revenue and productivity," said Chairman and CEO Indra Nooyi. "Based on our year-to-date performance and our outlook for the fourth quarter, we are raising our full-year core constant currency EPS growth objective."
Summary of Third Quarter Financial Performance:
- Reported net revenue declined 1.9 percent. Foreign exchange translation and the Venezuela deconsolidation each had a 3-percentage-point unfavorable impact on reported net revenue. Organic revenue, which excludes the impacts of foreign exchange translation and structural changes, grew 4.2 percent.
- Reported gross margin expanded 40 basis points and reported operating margin expanded 895 basis points. Reported operating margin expansion in the current year benefited from the 2015 Venezuela impairment charges (see page 4). Core gross margin expanded 50 basis points and core operating margin expanded 30 basis points. Reported and core operating margin expansion reflect the implementation of effective revenue management strategies and productivity gains partially offset by a 65-basis-point increase in advertising and marketing expense as a percentage of sales.
- Reported operating profit increased 99 percent (reflecting the impact of the 2015 Venezuela impairment charges) and core constant currency operating profit increased 2 percent. TheVenezuela impairment charges and the Venezuela deconsolidation (see page 4) had a net 91-percentage-point favorable impact on reported operating profit growth and the Venezueladeconsolidation had a 4-percentage-point unfavorable impact on core operating profit growth.
- The reported effective tax rate was 23.0 percent in 2016 and 54.5 percent in 2015 (due to the 2015 Venezuela impairment charges, which had no corresponding tax benefit). The core effective tax rate was 23.3 percent in 2016 and 24.6 percent in 2015.
- Reported EPS was $1.37, a 282 percent increase from the prior year, reflecting the impact of the 2015 Venezuela impairment charges. Foreign exchange translation negatively impacted reported EPS by 3 percentage points.
- Core EPS was $1.40, an increase of 4 percent. Excluding the impact of foreign exchange translation, core constant currency EPS increased 7 percent.
- The 2015 Venezuela impairment charges and the Venezuela deconsolidation had a net 260-percentage-point favorable impact on reported EPS growth and the Venezuela deconsolidation had a 5-percentage-point unfavorable impact on core EPS growth.
- Cash flow provided by operating activities was $3.7 billion.
Frito-Lay North America (FLNA)
Positively impacted by productivity gains and lower raw material costs, partially offset by operating cost inflation, higher advertising and marketing expenses and the impact of incremental investments.
Quaker Foods North America (QFNA)
Negatively impacted by higher advertising and marketing expenses, operating cost inflation and the impact of incremental investments, partially offset by productivity gains and lower raw material costs. The impact of ceasing the operations of our dairy joint venture benefited operating profit performance by 3 percentage points.
North America Beverages (NAB)
Positively impacted by productivity gains and lower raw material costs, partially offset by operating cost inflation, a pension-related settlement in the prior year (5 percentage points) and higher advertising and marketing expenses. Full report.
