PepsiCo Reports Fourth Quarter and Full-Year 2015 Results

Summary of Full-Year 2015 Financial Performance:

• Organic revenue grew 5 percent and reported net revenue declined 5 percent. Foreign exchange translation had a 10-percentage-point unfavorable impact on reported net revenue.
• Core gross margin and core operating margin expanded 140 basis points and 30 basis points, respectively. Operating margin improvement reflects the implementation of effective revenue management strategies and productivity initiatives, partially offset by impairment charges related to a dairy joint venture and a 40 basis point increase in advertising and marketing expense to 6.3 percent of sales. Reported gross margin expanded 130 basis points while reported operating margin declined 110 basis points, primarily reflecting the Venezuela charges.
• Core constant currency operating profit increased 6 percent. Reported operating profit declined 13 percent reflecting the Venezuela charges, unfavorable foreign exchange translation and a charge to write off the recorded value of the Tingyi-Asashi Beverages Holding Co. Ltd. (TAB) call option, partially offset by pension-related settlements, including the lapping of a pension lump sum settlement charge, lower restructuring and impairment charges, the mark-to-market net impact on commodity hedges and the lapping of a re-measurement of certain net monetary assets of our Venezuelan businesses.
• Core effective tax rate was 24.3 percent for 2015, which compares to 25.0 percent in the prior-year. Reported effective tax rate was 26.1 percent, above the prior-year's rate of 25.1 percent.
• Core EPS was $4.57 and reported EPS was $3.67. Core EPS excludes $0.91 per share of Venezuela charges, $0.12 per share of restructuring and impairment charges related to our previously announced productivity initiatives and $0.05 per share to write off the recorded value of the TAB call option, partially offset by $0.15 per share for a non-cash tax benefit and a $0.03 per share benefit for pension-related settlements.
• Cash flow provided by operating activities was $10.6 billion for the year. Free cash flow excluding certain items was $8.1 billion for the year.
• Core net return on invested capital was 19.6 percent for the year, an increase of 210 basis points from the prior year. Reported return on invested capital was 13.1 percent for the year, a decrease of 10 basis points from the prior year.

Discussion of Full-Year Division Core Constant Currency Operating Profit Results:

Core constant currency operating profit results for all divisions were positively impacted by organic revenue increases as presented in the tables on pages 6 and A-6. In addition, results for each division were impacted by the following:

Frito-Lay North America (FLNA)

Positively impacted by productivity gains and lower commodity costs, partially offset by operating cost inflation and higher advertising and marketing expense.

Quaker Foods North America (QFNA)

Negatively impacted by impairment charges related to a dairy joint venture, operating cost inflation, higher advertising and marketing expense and the lapping of a gain associated with the divestiture of a cereal business in the prior year. These impacts were partially offset by productivity gains, lower commodity costs and favorable product mix.

North America Beverages (NAB)

Positively impacted by productivity gains and lower commodity costs, partially offset by operating cost inflation and higher advertising and marketing expense.

Latin America

Positively impacted by productivity gains, partially offset by operating cost inflation, higher commodity costs, primarily from transaction-related foreign exchange, the fourth-quarter impact of the deconsolidation of Venezuela as well as the net impact of efficiency initiatives.

Europe Sub-Saharan Africa (ESSA)

Positively impacted by productivity gains, the net impact of efficiency initiatives and the net impact of prior-year impairment charges associated with a brand in Greece, partially offset by higher commodity costs, primarily from transaction-related foreign exchange, operating cost inflation, higher advertising and marketing expense and the lapping of a prior-year gain associated with the sale of agricultural assets.

Asia, Middle East and North Africa (AMENA)

Positively impacted by productivity gains and lower commodity costs. These impacts were partially offset by operating cost inflation, higher advertising and marketing expense and an impairment charge associated with a joint venture. In addition, the net impact of the refranchising of a portion of our beverage businesses in India and in the Middle East had a slight positive impact, which includes a gain from the India refranchising in the current year and lapping of a prior-year gain in the Middle East.

2016 Guidance and Outlook 2

The Company expects 2016 organic revenue growth of approximately 4 percent, excluding the impact of the 53rd week. Based on current foreign exchange market consensus rates, foreign exchange translation is expected to negatively impact reported net revenue growth by 4 percentage points and the 53rd week in 2016 is expected to contribute approximately 1 percentage point to reported net revenue growth.

The Company expects 2016 core earnings per share of $4.66, driven by the following expectations and factors: