PepsiCo reported before the market opened on February 11, 2021, it earned $1.33 per diluted share in the quarter that ended on December 26, 2020, up 6 percent from earnings of $1.26 in the equivalent 16 weeks of the previous year. These figures are the earnings determined in accordance with U.S. Generally Accepted Accounting Principles (GAAP).
Core earnings, a non-GAAP figure, rose 1 percent to $1.47 per share from $1.45 one year earlier, a less robust change than the GAAP percentage. The most significant exclusions contributing to the $0.14 per share difference in the latest quarter between the GAAP and Non-GAAP earnings were: Mark to market impact [($0.05) per share], Restructuring and impairment charges [$0.09 per share], and Pension-related settlement charge [$0.11 per share]. Non-GAAP earnings, by excluding unusual and non-cash items that could obscure the results of a business's primary, ongoing operations, are intended to be cleaner measures of corporate profits.
This post compares the quarterly Income Statement published by PepsiCo to the estimates I made in a previous “Look Ahead” post. My estimates were based on publicly available guidance provided by PepsiCo's management to financial analysts, news reports, and trends in the company's historical results. Unless otherwise mentioned, all reported values mentioned below are GAAP figures.
First, a little background about the company: PepsiCo is a global food and beverage company. In addition to the eponymous soft drinks, PepsiCo also owns the Frito-Lay snack food business. In April 2020, PepsiCo acquired energy drink maker Rockstar for $3.85 billion. PepsiCo bought SodaStream in 2018 for $3.2 billion.
The following table is a simplified version of PepsiCo's Income Statement for the quarter that ended in December 2020, with company-reported numbers along side my predictions. Figures from the year-earlier quarter are also provided to facilitate comparisons.
The Beverages North America business was responsible for 30 percent of overall revenue, and this unit's revenue grew by 8.6 percent compared to the year-earlier result. The Frito-Lay North America business contributed 24 percent of revenue, and this unit's revenue increased by 5.7 percent. The Europe unit supplied 18 percent of revenue, and this business's revenue rose by 3.8 percent.I was expecting PepsiCo to report revenue of $21.6 billion for the December 2020 quarter. The actual amount surpassed my estimate by $855.0 million (4.0 percent).
The Cost of Revenue (also known as Cost of Goods Sold) was $10.4 billion in the latest quarter, which translates into a Gross Margin of 53.6 percent of revenue. Since it was lower than the 54.7 percent Gross Margin achieved in the year-earlier quarter, it's a sign that PepsiCo sold its products and services at less profitable prices relative to production costs. I was expecting the Gross Margin to be 55.0 percent in the December 2020 quarter, and PepsiCo missed that prediction by 1.4 percent.
Sales, General, and Administrative expenses totaled $9.2 billion in the December 2020 quarter, up 7.1 percent from one year ago. SG&A expenses decreased from 41.6 percent to 41.0 percent of quarterly revenue, which shows PepsiCo spent less per dollar of sales on indirect operational costs, such as marketing. I had estimated that SG&A expenses would be 42.0 percent of revenue, and the actual percentage turned out to be lower than the prediction.
PepsiCo's Operating Income was $2.8 billion in the quarter, up 4.7 percent from the year-earlier period. Operating Income exceeded my $2.8 billion estimate by $18 million.
Interest and other non-operating items summed to a net expense of $469 million. My estimate for non-operating items was $350 million.
The effective income tax rate rose by 1.7 percent to 21.1 percent, which had a negative effect on net income. I expected the tax rate to be 21.0 percent.
Net income attributable to PepsiCo was $1.8 billion, $1.33 per share in the quarter ending December 2020. The figures for the year-earlier quarter were $1.8 billion, $1.26/share. My earnings estimate for the latest quarter was $1.9 billion ($1.39/share), so PepsiCo earned $0.06 per share less than I had expected.
In conclusion, the following list shows where the reported results differed from my expectations:
– Better than expected: SG&A/Revenue
– Worse than expected: Gross Margin + Misc non-operating items + Non-controlling interests
– Near expectations: Revenue growth + SG&A + Interest + Income tax rate
This post is not investment advice, and the accuracy of the information, tables, charts, and any commentary presented is not guaranteed. Readers are encouraged to independently verify all data using information from original sources. The Income Statements discussed in these blog posts have not been audited and may differ in material respects from those published by the subject company. These differences are intended to facilitate analysis and cross-company comparisons. Complete financial statements with notes can usually be found in the 10-Q and 10-K filings companies submit to the Securities and Exchange Commission (SEC).
#pepsico #pep #gauges #gcfr #gcfr2 #QtrlyRpt #nac_financialanalysis
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