PepsiCo Inc. (PEP) reported strong fourth quarter results with earnings of 90 cents per share. This was in line with the Zacks Consensus Estimate and up 96% year-over-year. The strong results were driven by strong gains in the worldwide snacks and international beverage businesses.
However, net sales for the quarter increased by 4.5% year-over-year to $13.3 billion. The increase was attributable to gains in Latin America Foods – LAF (+11%), Frito-Lay North America – FLNA (+2.0%), Pepsi Americas Foods – PAF (4%), Asia/Middle East/Africa – AMEA (+7.0%), PepsiCo International (+5%) and Europe (+4.0%) which was partially offset by PepsiCo America Beverages – PAB (-2.0%), and Quaker Foods North America – QFNA (-5%).
Volume in the FLNA segment was flat year-over-year with a 2% increase in revenue. Volume was affected by a promotional program.
The QFNA segment posted a volume decline of 2% and a net revenue decline of 5%. The decline in volume and revenues was attributable higher promotional activities during the quarter.
In the PAB segment, volume declined 5% and net revenue contracted 2%. The overall performance of the segment reflects continued softness in the overall liquid refreshment beverage category in North America.
The LAF segment also reported flat volumes, while net revenue increased 10%.
In the European segment, snacks volume declined 3%, reflecting pricing actions to offset the commodity cost inflation. However, beverage volume of the segment was flat during the quarter.
In the AMEA segment, net revenue grew 7% percent, beverage volume grew 8% and snacks volume grew 13%. These results were primarily driven by the company’s strong performance in key markets such as Thailand, Egypt and Pakistan.
Gross margins for the quarter expanded 115 basis points (bps) to 52.7% versus 51.5% in the comparable prior-year quarter. The increase was driven by effective pricing actions and cost-control measures, partially offset by commodity costs. The operating margin for the quarter expanded 572 bps to 15.3% from 9.6% 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 30%.
Concurrent with the earnings release, management provided guidance for fiscal 2010. The company is expecting 11% to 13% growth in EPS. This guidance assumes the company will close the bottling transactions by the end of February.
Furthermore, as a result of the company’s recent integration-planning efforts, the company is now targeting pre-tax annualized synergies from the proposed bottler acquisitions of approximately $400 million once fully implemented by 2012. Synergies of approximately $125 million to $150 million are expected to be realized in 2010.
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