PepsiCo Inc. (NYSE:PEP) is a world leader in convenient snacks, foods, and beverages, with revenues of $60 billion and over 285,000 employees. Pepsi is currently trading for $68.31. The stock is up slightly for the year, up 3%.
The company also increased its dividend earlier in the year by 4.4% to $0.5375 per quarter. However, the company has also been increasing its debt load, with long term debt at $23.7 billion. The company also seems to be seeing a slowing in earnings and revenue with Q3 2012 EPS and revenue below 2011 numbers. These trends do not bode well for Pepsi.
For the third quarter 2012, revenue at Pepsi came in at $16.65 billion. This is a decrease of about 5% from the $17.58 billion the company reported for the third quarter of 2011. Revenue for the third quarter of 2012 for the PepsiCo Americas Foods subsidiary came in at $5.77 billion, an increase of 2.5% from $5.62 billion reported for the third quarter of 2011. Revenue for the third quarter of 2012 for the PepsiCo Americas Beverages subsidiary came in at $5.53 billion, a decline of 7% from the $5.95 billion reported for the third quarter of 2011. Revenue for the third quarter of 2012 for PepsiCo's European subsidiary came in at $3.69 billion, a decline of 6% from the $3.91 billion reported for the third quarter of 2011. Revenue for the third quarter of 2012 for the PepsiCo's Asia, Middle East & Africa subsidiary came in at $1.66 billion, a decline of 21% from the $2.10 billion reported for the third quarter of 2011.
Earnings per share for the third quarter of 2012 came in at $1.21. This is a decline of 3% from the $1.25 reported for the third quarter of 2011.
Pepsi has a current dividend yield of 3.15% or $0.5375 per quarter, this is a 4.4% increase from the previous dividend of $0.515.
As of the end of the third quarter of 2012, Pepsi had 1.575 billion shares outstanding. This is a decrease of 1.5% from the 1.599 billion outstanding at the end of the third quarter of 2011.
Pepsi's dividend payout ratio for the third quarter of 2012 stood at 44.4%. However, this ratio has averaged 55% for the previous 8 quarters.
Long term debt at the end of the third quarter of 2012 was $23.7 billion. This is an increase of 15% from the third quarter of 2011 amount of $20.6 billion. However, cash and cash equivalents at the end of the third quarter stood at $5.30 billion, an increase of 30% from the $4.06 billion at the end of the third quarter of 2011. To get a better picture of the total amount of debt at Pepsi, we can subtract the cash from the long term debt. This total will be call Net Debt. Net Debt at the third quarter of 2012 stood at $18.4 billion, a decrease of 2% from the $18.7 billion in Net Debt at the end of the third quarter of 2011. Pepsi's interest expense for the third quarter of 2012 was $204 million. This is a slight decrease from $205 million in interest expense for the third quarter of 2011. The company has benefited from generally lower interest rates this year compared to last. However, the trendline in the chart below is clear: Pepsi has increased its debt load substantially in 8 quarters.
On 02/12/2012 PepsiCo announced a series of strategic investment and productivity initiatives. The company has a target for high single digit core constant currency EPS growth for 2013. The company also has stated that 2012 will be a transition year in which to expect core constant currency EPS to decrease by 5%. The plan also includes a multi-year productivity program expected to generate $1.5 billion of incremental cost savings by 2014 by a reduction in force of about 8,700 employees, about 3 percent of global workforce. The plan also includes plans to increase advertising and marketing support behind its global brands by $500-$600 million in 2012, with particular focus on North America. (Source)
Pepsi's lackluster dividend growth and stagnant EPS and revenue numbers do not impress me. The increase in long term debt is also worrying. Though this dividend is rock solid, do not expect a significant raise next year. I would wait till the restructuring bares some fruit before I would buy stock in Pepsi.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.