PepsiCo Inc. (PEP) reported strong first quarter results with earnings of 89 cents per share. This was well above the Zacks Consensus Estimate of 75 cents and up 23% year-over-year. Profits were driven by the acquisition of its two anchor bottlers, volume gains in its worldwide snacks and international beverage businesses, balanced investments and lower costs across its operations.
Results by Segment
However, net sales for the quarter increased by 13.4% year-over-year to $9.4 billion. The increase was attributable to gains in PepsiCo America Beverages-PAB (+32%), Asia/Middle East/Africa-AMEA (+13%), Latin America Foods – LAF (+8%), Frito-Lay North America- FLNA (+2.0%), Pepsi Americas Foods-PAF (4%), which was partially offset by Quaker Foods North America-QFNA (-3%) and Europe (-3%).
Volume in the FLNA segment grew 1% year-over-year with a 2% increase in revenue. Volume growth reflected strong performance in trademark Lay’s and variety packs.
The QFNA segment posted volume decline of 1% and net revenue decline of 3%. The decline in volume and revenues was attributable to higher promotional activities during the quarter.
In the PAB segment, net revenue grew 32%. The overall performance of the segment reflects continued softness in the overall liquid refreshment beverage category in North America.
The LAF segment also reported 1% growth in volumes, while net revenue increased 8%.
Results by Region
In Europe, snacks volume declined 4%, reflecting pricing actions to offset the commodity cost inflation. However, beverage volume of the segment also declined 4% during the quarter.
In the AMEA segment, net revenue grew 13% percent, beverage volume grew 10% and snacks volume grew 13%. These results were primarily driven by the company’s strong performance in key markets.
Gross margins for the quarter contracted 233 basis points (bps) to 52.4% versus 54.7% in the comparable prior-year quarter. The operating profit for the quarter also reduced to $840 million compared to $1.6 billion in the prior-year quarter.
Cash and cash equivalents for the year were $3.9 billion, and the company has a debt-to-capitalization ratio of 47.6%.
Concurrent with the earnings release, management provided guidance for fiscal 2010. The company is targeting a 11% to 13% growth rate for constant currency EPS.
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