PepsiCo Inc. (PEP) is a global food and beverage company which operates four business units: PepsiCo Americas Foods, PepsiCo Americas Beverages, PepsiCo Europe and PepsiCo Asia Middle East and Africa. The company reported earnings before the market opened on 13Feb14 and on the surface there were mixed results with the company reporting earnings of $1.05 per share (beating estimates by $0.04) on revenue of $20.12 billion (missing estimates by $40 million). What I'd like to do at this time is delve into the weeds and pick out some highlights from different portions of the report to see if the stock is worth buying at the present time.
Segment Revenues (millions)
Frito-Lay North America
Quaker Foods North America
Latin America Foods
PepsiCo Americas Foods
PepsiCo Americas Beverages
Asia, Middle East & Africa
Compared to last year total revenue has increased by 1%. Things of interest to me are the 3% increase in PepsiCo Americas Foods. Americas Foods is a combination of Frito-Lay North America, Quaker Foods North America and Latin America Foods all of which manufacture, market and sell branded foods and accounts for 39% of total revenues. The revenue reflected a 3.5% unfavorable impact from foreign exchange rates.
Income Statement (millions)
Cost of Sales
Selling, general and administrative expenses
Amortization of intangible assets
Interest Income and other
Income before income taxes
Provision for income taxes
Less: net income attributable to non-controlling interests
Net income attributable to the company
Avg. common shares outstanding
Net income per common share
Looking at the income statement at first glance is very appealing as you look at the bottom line and notice that earnings increased by 6% from last year; I'd like to sift through the income statement to see why that was the case. The first thing I notice is the 8% increase in operating profit due in large part to the increase in revenue and decrease in cost of sales. The operating profit also included restructuring and impairment costs in both 2013 and 2012 as well as the overlap of a lump sum pension settlement charge in 2012. Next thing I notice is the detriment that interest income had on the statement with a 20% decrease. Income before income taxes increased 10% in large part to the decrease in interest expenses. Provision for income taxes increased a dramatic 36% which chopped income to just a 5% gain. Net income attributable to non-controlling interests increased 100% but wasn't sufficient enough to contribute to what was attributable to the company.
Balance Sheet (millions)
Cash and cash equivalents
Accounts and notes receivables
Work in process
Prepaid expenses and other current assets
Total current assets
Property, plant and equipment, net
Amortizable intangible assets
Other nonamortizable intangible assets
Nonamortizable Intangible Assets
Investments in noncontrolled affiliates
Accounts payable and other current liabilities
Income taxes payable
Total current liabilities
Long-term debt obligations
Deferred income taxes
Preferred stock, no par value
Repurchased preferred stock
Capital in excess of par value
Accumulated other comprehensive loss
Repurchased common stock
Total PepsiCo Common Shareholders' Equity
Total Liabilities and Equity
On the current asset side of things cash and cash equivalents increased 49%! Overall inventories decreased 5% while prepaid expenses and other current assets increased 49% bringing total current assets to a 19% increase from the prior year. With a 13% and 34% increase in investments in non-controlled affiliates and other assets, respectively, total assets have increased 4% from the prior year. On the debt side of things we saw a 10% increase in short-term debt obligations and a 100% decrease in income taxes payable bringing total current liabilities to a 4% increase. Other liabilities decreased by 25% while deferred income taxes increased 18% bringing total liabilities to a 2% increase from the past year. The balance sheet looks pretty solid at this point in time.
The company reported earnings which were 6% higher than the year before on 1% more revenue while the share price was up 9.77% in the past year excluding dividends. The increase in earnings was due primarily to better operating efficiency which isn't a bad way to make money, but I'd like to see more revenue. The share count actually decreased negligibly and contributed a penny to earnings. I like the quality of the earnings really because of the increase in revenue. On a fundamental basis I believe this company is fairly valued with respect to 2015 earnings. The stock was down 2.21% after reporting earnings in the face of an S&P500 which gained 0.58%. Although the company beat the analyst estimates the earnings per share were much more than last year. I believe this is a good name to be in and will continue buying shares on any dip. The company also plans to increase cash returns to $8.7 billion in 2014 by 35% through a dividend increase and share repurchases. The company started by increasing the dividend to $2.62 per share from $2.27 and will take effect in June.
Disclaimer: This article is meant to serve as a journal for myself as to the rationale of why I bought/sold this stock when I look back on it in the future. These are only my personal opinions and you should do your own homework. Only you are responsible for what you trade and happy investing!