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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 Revenue

Segment Revenues (millions)

4Q13

4Q12

Y/Y

Frito-Lay North America

$ 4,247

$ 4,102

4%

Quaker Foods North America

$ 797

$ 815

-2%

Latin America Foods

$ 2,818

$ 2,714

4%

PepsiCo Americas Foods

$ 7,862

$ 7,631

3%

PepsiCo Americas Beverages

$ 5,982

$ 6,078

-2%

Europe

$ 4,339

$ 4,288

1%

Asia, Middle East & Africa

$ 1,935

$ 1,957

-1%

Total Revenue

$ 20,118

$ 19,954

1%

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

Income Statement (millions)

4Q13

4Q12

Y/Y

Total Revenue

$ 20,118

$ 19,954

1%

Cost of Sales

$ 9,565

$ 9,654

-1%

Selling, general and administrative expenses

$ 8,120

$ 8,050

1%

Amortization of intangible assets

$ 35

$ 37

-5%

Operating Profit

$ 2,398

$ 2,213

8%

Interest Expense

$ (269)

$ (288)

-7%

Interest Income and other

$ 35

$ 44

-20%

Income before income taxes

$ 2,164

$ 1,969

10%

Provision for income taxes

$ 410

$ 302

36%

Net income

$ 1,754

$ 1,667

5%

Less: net income attributable to non-controlling interests

$ 12

$ 6

100%

Net income attributable to the company

$ 1,742

$ 1,661

5%

Avg. common shares outstanding

1,552

1,564

-1%

Net income per common share

$ 1.12

$ 1.06

6%

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

Balance Sheet (millions)

4Q13

4Q12

Y/Y

Cash and cash equivalents

$ 9,375

$ 6,297

49%

Short-term investments

$ 303

$ 322

-6%

Accounts and notes receivables

$ 6,954

$ 7,041

-1%

Raw materials

$ 1,732

$ 1,875

-8%

Work in process

$ 168

$ 173

-3%

Finished goods

$ 1,509

$ 1,533

-2%

Inventories

$ 3,409

$ 3,581

-5%

Prepaid expenses and other current assets

$ 2,162

$ 1,479

46%

Total current assets

$ 22,203

$ 18,720

19%

Property, plant and equipment, net

$ 18,575

$ 19,136

-3%

Amortizable intangible assets

$ 1,638

$ 1,781

-8%

Goodwill

$ 16,613

$ 16,971

-2%

Other nonamortizable intangible assets

$ 14,401

$ 14,744

-2%

Nonamortizable Intangible Assets

$ 31,014

$ 31,715

-2%

Investments in noncontrolled affiliates

$ 1,841

$ 1,633

13%

Other assets

$ 2,207

$ 1,653

34%

Total assets

$ 77,478

$ 74,638

4%

Short-term obligations

$ 5,306

$ 4,815

10%

Accounts payable and other current liabilities

$ 12,533

$ 11,903

5%

Income taxes payable

$ -

$ 371

-100%

Total current liabilities

$ 17,839

$ 17,089

4%

Long-term debt obligations

$ 24,333

$ 23,544

3%

Other liabilities

$ 4,931

$ 6,543

-25%

Deferred income taxes

$ 5,986

$ 5,063

18%

Total liabilities

$ 53,089

$ 52,239

2%

Preferred stock, no par value

$ 41

$ 41

0%

Repurchased preferred stock

$ (171)

$ (164)

4%

Common stock

$ 25

$ 26

-4%

Capital in excess of par value

$ 4,095

$ 4,178

-2%

Retained earnings

$ 46,420

$ 43,158

8%

Accumulated other comprehensive loss

$ (5,127)

$ (5,487)

-7%

Repurchased common stock

$ (21,004)

$ (19,458)

8%

Total PepsiCo Common Shareholders' Equity

$ 24,409

$ 22,417

9%

Noncontrolling interests

$ 110

$ 105

5%

Total Equity

$ 24,389

$ 22,399

9%

Total Liabilities and Equity

$ 77,478

$ 74,638

4%

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.

Conclusion

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!

Source: Pepsi's Earnings Increase 6% Year Over Year, But Is It A Buy?