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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
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☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 9, 2023 (36 weeks)
OR
| | | | | |
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number 1-1183
(Exact Name of Registrant as Specified in its Charter)
| | | | | | | | |
| | |
North Carolina | | 13-1584302 |
(State or Other Jurisdiction of Incorporation or Organization) | | (I.R.S. Employer Identification No.) |
| |
| | |
| | |
700 Anderson Hill Road, Purchase, New York 10577
| | |
(Address of principal executive offices and Zip Code) |
(914) 253-2000
| | |
Registrant's telephone number, including area code |
N/A
| | |
(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report) |
Securities registered pursuant to Section 12(b) of the Securities Exchange Act of 1934:
| | | | | | | | | | | | | | |
Title of each class | | Trading Symbols | | Name of each exchange on which registered |
Common Stock, par value 1-2/3 cents per share | | PEP | | The Nasdaq Stock Market LLC |
0.250% Senior Notes Due 2024 | | PEP24 | | The Nasdaq Stock Market LLC |
2.625% Senior Notes Due 2026 | | PEP26 | | The Nasdaq Stock Market LLC |
0.750% Senior Notes Due 2027 | | PEP27 | | The Nasdaq Stock Market LLC |
0.875% Senior Notes Due 2028 | | PEP28 | | The Nasdaq Stock Market LLC |
0.500% Senior Notes Due 2028 | | PEP28a | | The Nasdaq Stock Market LLC |
3.200% Senior Notes Due 2029 | | PEP29 | | The Nasdaq Stock Market LLC |
1.125% Senior Notes Due 2031 | | PEP31 | | The Nasdaq Stock Market LLC |
0.400% Senior Notes Due 2032 | | PEP32 | | The Nasdaq Stock Market LLC |
0.750% Senior Notes Due 2033 | | PEP33 | | The Nasdaq Stock Market LLC |
3.550% Senior Notes Due 2034 | | PEP34 | | The Nasdaq Stock Market LLC |
0.875% Senior Notes Due 2039 | | PEP39 | | The Nasdaq Stock Market LLC |
1.050% Senior Notes Due 2050 | | PEP50 | | The Nasdaq Stock Market LLC |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ¨
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| | | | | | | | | | | |
Large accelerated filer | ☒ | Accelerated filer | ☐ |
Non-accelerated filer | ☐ | Smaller reporting company | ☐ |
| | Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
Number of shares of Common Stock outstanding as of October 3, 2023 was 1,374,863,961.
PepsiCo, Inc. and Subsidiaries
Table of Contents
| | | | | | | | |
| | Page No. |
Part I Financial Information | |
Item 1. | Condensed Consolidated Financial Statements | |
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Item 2. | | |
Report of Independent Registered Public Accounting Firm | |
Item 3. | | |
Item 4. | | |
Part II Other Information | |
Item 1. | | |
Item 1A. | | |
Item 2. | | |
Item 5. | | |
Item 6. | | |
PART I FINANCIAL INFORMATION
ITEM 1. Condensed Consolidated Financial Statements.
Condensed Consolidated Statement of Income
PepsiCo, Inc. and Subsidiaries
(in millions except per share amounts, unaudited)
| | | | | | | | | | | | | | | | | | | | | | | |
| 12 Weeks Ended | | 36 Weeks Ended |
| 9/9/2023 | | 9/3/2022 | | 9/9/2023 | | 9/3/2022 |
Net Revenue | $ | 23,453 | | | $ | 21,971 | | | $ | 63,621 | | | $ | 58,396 | |
Cost of sales | 10,675 | | | 10,308 | | | 28,784 | | | 27,156 | |
Gross profit | 12,778 | | | 11,663 | | | 34,837 | | | 31,240 | |
Selling, general and administrative expenses | 8,757 | | | 8,295 | | | 24,528 | | | 22,262 | |
Gain associated with the Juice Transaction (a) | — | | | 14 | | | — | | | (3,321) | |
Impairment of intangible assets (see Notes 1 and 4) | 6 | | | 1 | | | 6 | | | 1,602 | |
Operating Profit | 4,015 | | | 3,353 | | | 10,303 | | | 10,697 | |
Other pension and retiree medical benefits income | 62 | | | 36 | | | 183 | | | 168 | |
Net interest expense and other | (201) | | | (190) | | | (602) | | | (666) | |
Income before income taxes | 3,876 | | | 3,199 | | | 9,884 | | | 10,199 | |
Provision for income taxes | 760 | | | 475 | | | 2,053 | | | 1,756 | |
Net income | 3,116 | | | 2,724 | | | 7,831 | | | 8,443 | |
Less: Net income attributable to noncontrolling interests | 24 | | | 22 | | | 59 | | | 51 | |
Net Income Attributable to PepsiCo | $ | 3,092 | | | $ | 2,702 | | | $ | 7,772 | | | $ | 8,392 | |
Net Income Attributable to PepsiCo per Common Share | | | | | | | |
Basic | $ | 2.25 | | | $ | 1.96 | | | $ | 5.64 | | | $ | 6.07 | |
Diluted | $ | 2.24 | | | $ | 1.95 | | | $ | 5.62 | | | $ | 6.04 | |
Weighted-average common shares outstanding | | | | | | | |
Basic | 1,376 | | | 1,380 | | | 1,377 | | | 1,382 | |
Diluted | 1,383 | | | 1,387 | | | 1,384 | | | 1,389 | |
(a)In the 36 weeks ended September 3, 2022, we sold our Tropicana, Naked and other select juice brands to PAI Partners for $3.5 billion in cash and a 39% noncontrolling interest in a joint venture, Tropicana Brands Group (TBG), operating across North America and Europe (Juice Transaction). See Note 12 for further information.
See accompanying notes to the condensed consolidated financial statements.
Condensed Consolidated Statement of Comprehensive Income
PepsiCo, Inc. and Subsidiaries
(in millions, unaudited)
| | | | | | | | | | | | | | | | | | | | | | | |
| 12 Weeks Ended | | 36 Weeks Ended |
| 9/9/2023 | | 9/3/2022 | | 9/9/2023 | | 9/3/2022 |
Net income | $ | 3,116 | | | $ | 2,724 | | | $ | 7,831 | | | $ | 8,443 | |
Other comprehensive (loss)/income, net of taxes: | | | | | | | |
Net currency translation adjustment | 2 | | | (324) | | | (431) | | | 390 | |
Net change on cash flow hedges | (11) | | | (113) | | | (46) | | | (109) | |
Net pension and retiree medical adjustments | (8) | | | 108 | | | (18) | | | (129) | |
| | | | | | | |
Other | 3 | | | 2 | | | 3 | | | 3 | |
| (14) | | | (327) | | | (492) | | | 155 | |
Comprehensive income | 3,102 | | | 2,397 | | | 7,339 | | | 8,598 | |
Less: Comprehensive income attributable to noncontrolling interests | 24 | | | 22 | | | 59 | | | 51 | |
Comprehensive Income Attributable to PepsiCo | $ | 3,078 | | | $ | 2,375 | | | $ | 7,280 | | | $ | 8,547 | |
See accompanying notes to the condensed consolidated financial statements.
Condensed Consolidated Statement of Cash Flows
PepsiCo, Inc. and Subsidiaries
(in millions, unaudited)
| | | | | | | | | | | |
| 36 Weeks Ended |
| 9/9/2023 | | 9/3/2022 |
Operating Activities | | | |
Net income | $ | 7,831 | | | $ | 8,443 | |
Depreciation and amortization | 1,973 | | | 1,854 | |
Gain associated with the Juice Transaction | — | | | (3,321) | |
Impairment and other charges | 102 | | | 1,877 | |
Operating lease right-of-use asset amortization | 384 | | | 346 | |
Share-based compensation expense | 267 | | | 233 | |
Restructuring and impairment charges | 287 | | | 126 | |
Cash payments for restructuring charges | (283) | | | (134) | |
Acquisition and divestiture-related charges | 20 | | | 69 | |
Cash payments for acquisition and divestiture-related charges | (15) | | | (41) | |
Pension and retiree medical plan expenses | 93 | | | 235 | |
Pension and retiree medical plan contributions | (374) | | | (335) | |
Deferred income taxes and other tax charges and credits | 343 | | | (322) | |
Tax expense related to the Tax Cuts and Jobs Act (TCJ Act) | — | | | 86 | |
Tax payments related to the TCJ Act | (309) | | | (309) | |
Change in assets and liabilities: | | | |
Accounts and notes receivable | (1,699) | | | (2,258) | |
Inventories | (473) | | | (837) | |
Prepaid expenses and other current assets | (242) | | | (124) | |
Accounts payable and other current liabilities | (859) | | | 426 | |
Income taxes payable | 512 | | | 718 | |
Other, net | 72 | | | (426) | |
Net Cash Provided by Operating Activities | 7,630 | | | 6,306 | |
| | | |
Investing Activities | | | |
Capital spending | (2,537) | | | (2,556) | |
Sales of property, plant and equipment | 131 | | | 228 | |
Acquisitions, net of cash acquired, investments in noncontrolled affiliates and purchases of intangible and other assets | (132) | | | (804) | |
Proceeds associated with the Juice Transaction | — | | | 3,456 | |
Other divestitures, sales of investments in noncontrolled affiliates and other assets | 75 | | | 15 | |
Short-term investments, by original maturity: | | | |
More than three months - purchases | (555) | | | (46) | |
More than three months - maturities | 554 | | | — | |
More than three months - sales | 12 | | | — | |
Three months or less, net | 24 | | | 9 | |
Other investing, net | 49 | | | 7 | |
Net Cash (Used for)/Provided by Investing Activities | (2,379) | | | 309 | |
(Continued on following page)
Condensed Consolidated Statement of Cash Flows (continued)
PepsiCo, Inc. and Subsidiaries
(in millions, unaudited)
| | | | | | | | | | | |
| 36 Weeks Ended |
| 9/9/2023 | | 9/3/2022 |
Financing Activities | | | |
Proceeds from issuances of long-term debt | $ | 2,986 | | | $ | 3,377 | |
Payments of long-term debt | (2,253) | | | (1,653) | |
Debt redemptions | — | | | (1,550) | |
Short-term borrowings, by original maturity: | | | |
More than three months - proceeds | 4,688 | | | 1,947 | |
More than three months - payments | (1,037) | | | (1,932) | |
Three months or less, net | 1,395 | | | (45) | |
| | | |
Cash dividends paid | (4,941) | | | (4,586) | |
Share repurchases - common | (751) | | | (1,156) | |
Proceeds from exercises of stock options | 100 | | | 113 | |
Withholding tax payments on restricted stock units (RSUs) and performance stock units (PSUs) converted | (135) | | | (97) | |
Other financing | (18) | | | (25) | |
Net Cash Provided by/(Used for) Financing Activities | 34 | | | (5,607) | |
Effect of exchange rate changes on cash and cash equivalents and restricted cash | (254) | | | (197) | |
Net Increase in Cash and Cash Equivalents and Restricted Cash | 5,031 | | | 811 | |
Cash and Cash Equivalents and Restricted Cash, Beginning of Year | 5,100 | | | 5,707 | |
Cash and Cash Equivalents and Restricted Cash, End of Period | $ | 10,131 | | | $ | 6,518 | |
| | | |
Supplemental Non-Cash Activity | | | |
Right-of-use assets obtained in exchange for lease obligations | $ | 705 | | | $ | 560 | |
Debt discharged via legal defeasance | $ | 94 | | | $ | — | |
See accompanying notes to the condensed consolidated financial statements.
Condensed Consolidated Balance Sheet
PepsiCo, Inc. and Subsidiaries
(in millions except per share amounts)
| | | | | | | | | | | |
| (Unaudited) | | |
| 9/9/2023 | | 12/31/2022 |
ASSETS | | | |
Current Assets | | | |
Cash and cash equivalents | $ | 10,017 | | | $ | 4,954 | |
Short-term investments | 266 | | | 394 | |
| | | |
Accounts and notes receivable, less allowance ($188 and $150, respectively) | 11,782 | | | 10,163 | |
Inventories: | | | |
Raw materials and packaging | 2,456 | | | 2,366 | |
Work-in-process | 119 | | | 114 | |
Finished goods | 2,983 | | | 2,742 | |
| 5,558 | | | 5,222 | |
Prepaid expenses and other current assets | 1,026 | | | 806 | |
| | | |
Total Current Assets | 28,649 | | | 21,539 | |
Property, plant and equipment | 51,585 | | | 49,784 | |
Accumulated depreciation | (26,732) | | | (25,493) | |
Property, Plant and Equipment, net | 24,853 | | | 24,291 | |
Amortizable Intangible Assets, net | 1,208 | | | 1,277 | |
Goodwill | 17,892 | | | 18,202 | |
Other Indefinite-Lived Intangible Assets | 14,293 | | | 14,309 | |
| | | |
Investments in Noncontrolled Affiliates | 2,955 | | | 3,073 | |
Deferred Income Taxes | 4,165 | | | 4,204 | |
Other Assets | 5,938 | | | 5,292 | |
Total Assets | $ | 99,953 | | | $ | 92,187 | |
| | | |
LIABILITIES AND EQUITY | | | |
Current Liabilities | | | |
Short-term debt obligations | $ | 8,937 | | | $ | 3,414 | |
Accounts payable and other current liabilities | 23,723 | | | 23,371 | |
| | | |
Total Current Liabilities | 32,660 | | | 26,785 | |
Long-Term Debt Obligations | 35,837 | | | 35,657 | |
Deferred Income Taxes | 4,047 | | | 4,133 | |
Other Liabilities | 8,439 | | | 8,339 | |
Total Liabilities | 80,983 | | | 74,914 | |
Commitments and contingencies | | | |
PepsiCo Common Shareholders’ Equity | | | |
Common stock, par value 12/3¢ per share (authorized 3,600 shares; issued, net of repurchased common stock at par value: 1,375 and 1,377 shares, respectively) | 23 | | | 23 | |
Capital in excess of par value | 4,154 | | | 4,134 | |
Retained earnings | 70,479 | | | 67,800 | |
Accumulated other comprehensive loss | (15,794) | | | (15,302) | |
Repurchased common stock, in excess of par value (492 and 490 shares, respectively) | (40,056) | | | (39,506) | |
Total PepsiCo Common Shareholders’ Equity | 18,806 | | | 17,149 | |
Noncontrolling interests | 164 | | | 124 | |
Total Equity | 18,970 | | | 17,273 | |
Total Liabilities and Equity | $ | 99,953 | | | $ | 92,187 | |
See accompanying notes to the condensed consolidated financial statements.
Condensed Consolidated Statement of Equity
PepsiCo, Inc. and Subsidiaries
(in millions, except per share amounts, unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 12 Weeks Ended | | 36 Weeks Ended |
| 9/9/2023 | | 9/3/2022 | | 9/9/2023 | | 9/3/2022 |
| Shares | | Amount | | Shares | | Amount | | Shares | | Amount | | Shares | | Amount |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
Common Stock | | | | | | | | | | | | | | | |
Balance, beginning of period | 1,377 | | | $ | 23 | | | 1,381 | | | $ | 23 | | | 1,377 | | | $ | 23 | | | 1,383 | | | $ | 23 | |
Change in repurchased common stock | (2) | | | — | | | (2) | | | — | | | (2) | | | — | | | (4) | | | — | |
Balance, end of period | 1,375 | | | 23 | | | 1,379 | | | 23 | | | 1,375 | | | 23 | | | 1,379 | | | 23 | |
Capital in Excess of Par Value | | | | | | | | | | | | | | | |
Balance, beginning of period | | | 4,082 | | | | | 3,970 | | | | | 4,134 | | | | | 4,001 | |
Share-based compensation expense | | | 88 | | | | | 77 | | | | | 267 | | | | | 236 | |
| | | | | | | | | | | | | | | |
Stock option exercises, RSUs and PSUs converted | | | 3 | | | | | 1 | | | | | (108) | | | | | (102) | |
Withholding tax on RSUs and PSUs converted | | | (16) | | | | | (10) | | | | | (135) | | | | | (97) | |
Other | | | (3) | | | | | (2) | | | | | (4) | | | | | (2) | |
Balance, end of period | | | 4,154 | | | | | 4,036 | | | | | 4,154 | | | | | 4,036 | |
Retained Earnings | | | | | | | | | | | | | | | |
Balance, beginning of period | | | 69,135 | | | | | 67,763 | | | | | 67,800 | | | | | 65,165 | |
| | | | | | | | | | | | | | | |
Net income attributable to PepsiCo | | | 3,092 | | | | | 2,702 | | | | | 7,772 | | | | | 8,392 | |
Cash dividends declared – common (a) | | | (1,748) | | | | | (1,593) | | | | | (5,093) | | | | | (4,685) | |
| | | | | | | | | | | | | | | |
Balance, end of period | | | 70,479 | | | | | 68,872 | | | | | 70,479 | | | | | 68,872 | |
Accumulated Other Comprehensive Loss | | | | | | | | | | | | | | | |
Balance, beginning of period | | | (15,780) | | | | | (14,416) | | | | | (15,302) | | | | | (14,898) | |
Other comprehensive (loss)/income attributable to PepsiCo | | | (14) | | | | | (327) | | | | | (492) | | | | | 155 | |
Balance, end of period | | | (15,794) | | | | | (14,743) | | | | | (15,794) | | | | | (14,743) | |
Repurchased Common Stock | | | | | | | | | | | | | | | |
Balance, beginning of period | (490) | | | (39,775) | | | (486) | | | (38,787) | | | (490) | | | (39,506) | | | (484) | | | (38,248) | |
Share repurchases | (2) | | | (293) | | | (3) | | | (448) | | | (5) | | | (759) | | | (7) | | | (1,179) | |
Stock option exercises, RSUs and PSUs converted | — | | | 11 | | | 1 | | | 23 | | | 3 | | | 208 | | | 3 | | | 215 | |
Other | — | | | 1 | | | — | | | 1 | | | — | | | 1 | | | — | | | 1 | |
Balance, end of period | (492) | | | (40,056) | | | (488) | | | (39,211) | | | (492) | | | (40,056) | | | (488) | | | (39,211) | |
Total PepsiCo Common Shareholders’ Equity | | | 18,806 | | | | | 18,977 | | | | | 18,806 | | | | | 18,977 | |
Noncontrolling Interests | | | | | | | | | | | | | | | |
Balance, beginning of period | | | 140 | | | | | 121 | | | | | 124 | | | | | 108 | |
Net income attributable to noncontrolling interest | | | 24 | | | | | 22 | | | | | 59 | | | | | 51 | |
Distributions to noncontrolling interests | | | — | | | | | (6) | | | | | (15) | | | | | (20) | |
| | | | | | | | | | | | | | | |
Acquisitions | | | — | | | | | 21 | | | | | — | | | | | 21 | |
Other, net | | | — | | | | | — | | | | | (4) | | | | | (2) | |
Balance, end of period | | | 164 | | | | | 158 | | | | | 164 | | | | | 158 | |
Total Equity | | | $ | 18,970 | | | | | $ | 19,135 | | | | | $ | 18,970 | | | | | $ | 19,135 | |
(a)Cash dividends declared per common share were $1.265 and $1.15 for the 12 weeks ended September 9, 2023 and September 3, 2022, respectively, and $3.68 and $3.375 for the 36 weeks ended September 9, 2023 and September 3, 2022, respectively.
See accompanying notes to the condensed consolidated financial statements.
Notes to the Condensed Consolidated Financial Statements
Note 1 - Basis of Presentation and Our Divisions
Basis of Presentation
When used in this report, the terms “we,” “us,” “our,” “PepsiCo” and the “Company” mean PepsiCo, Inc. and its consolidated subsidiaries, collectively.
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. Generally Accepted Accounting Principles (GAAP) for interim financial information and with the rules and regulations for reporting the Quarterly Report on Form 10-Q (Form 10-Q). Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. The condensed consolidated balance sheet at December 31, 2022 has been derived from the audited consolidated financial statements at that date, but does not include all of the information and footnotes required by GAAP for complete financial statements. These financial statements have been prepared on a basis that is substantially consistent with the accounting principles applied in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022 (2022 Form 10-K). This report should be read in conjunction with our 2022 Form 10-K. In our opinion, these financial statements include all normal and recurring adjustments necessary for a fair presentation. The results for the 12 and 36 weeks ended September 9, 2023 are not necessarily indicative of the results expected for any future period or the full year.
Raw materials, direct labor and plant overhead, as well as purchasing and receiving costs, costs directly related to production planning, inspection costs and raw materials handling facilities, are included in cost of sales. The costs of moving, storing and delivering finished product, including merchandising activities, are included in selling, general and administrative expenses.
While our financial results in the United States and Canada (North America) are reported on a 12-week basis, all of our international operations are reported on a monthly calendar basis for which the months of June, July and August are reflected in our results for the 12 weeks ended September 9, 2023 and September 3, 2022, and the months of January through August are reflected in our results for the 36 weeks ended September 9, 2023 and September 3, 2022.
The preparation of our condensed consolidated financial statements requires management to make estimates and assumptions that affect the amounts reported in our condensed consolidated financial statements and related disclosures. Additionally, the business and economic uncertainty resulting from the Russia-Ukraine conflict and the high interest rate and inflationary cost environment has made such estimates and assumptions more difficult to calculate. Accordingly, actual results and outcomes could differ from those estimates.
Our significant interim accounting policies include the recognition of a pro rata share of certain estimated annual sales incentives and certain advertising and marketing costs in proportion to revenue or volume, as applicable, and the recognition of income taxes using an estimated annual effective tax rate.
Unless otherwise noted, tabular dollars are in millions, except per share amounts. All per share amounts reflect common per share amounts, assume dilution unless otherwise noted, and are based on unrounded amounts. Certain reclassifications were made to the prior year’s financial statements to conform to the current year presentation.
Our Divisions
We are organized into seven reportable segments (also referred to as divisions), as follows:
1)Frito-Lay North America (FLNA), which includes our branded convenient food businesses in the United States and Canada;
2)Quaker Foods North America (QFNA), which includes our branded convenient food businesses, such as cereal, rice, pasta and other branded food, in the United States and Canada;
3)PepsiCo Beverages North America (PBNA), which includes our beverage businesses in the United States and Canada;
4)Latin America (LatAm), which includes all of our beverage and convenient food businesses in Latin America;
5)Europe, which includes all of our beverage and convenient food businesses in Europe;
6)Africa, Middle East and South Asia (AMESA), which includes all of our beverage and convenient food businesses in Africa, the Middle East and South Asia; and
7)Asia Pacific, Australia and New Zealand and China region (APAC), which includes all of our beverage and convenient food businesses in Asia Pacific, Australia and New Zealand, and China region.
Net revenue of each division is as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| 12 Weeks Ended | | 36 Weeks Ended |
| 9/9/2023 | | 9/3/2022 | | 9/9/2023 | | 9/3/2022 |
FLNA | $ | 5,954 | | | $ | 5,563 | | | $ | 17,441 | | | $ | 15,583 | |
QFNA | 747 | | | 713 | | | 2,208 | | | 2,101 | |
PBNA | 7,161 | | | 6,635 | | | 19,714 | | | 18,108 | |
LatAm | 3,055 | | | 2,517 | | | 7,688 | | | 6,406 | |
Europe | 3,704 | | | 3,646 | | | 9,018 | | | 8,466 | |
AMESA | 1,615 | | | 1,726 | | | 4,202 | | | 4,426 | |
APAC | 1,217 | | | 1,171 | | | 3,350 | | | 3,306 | |
Total | $ | 23,453 | | | $ | 21,971 | | | $ | 63,621 | | | $ | 58,396 | |
Our primary performance obligation is the distribution and sales of beverage and convenient food products to our customers. The following tables reflect the approximate percentage of net revenue generated between our beverage business and our convenient food business for each of our international divisions, as well as our consolidated net revenue:
| | | | | | | | | | | | | | | | | | | | | | | |
| 12 Weeks Ended |
| 9/9/2023 | | 9/3/2022 |
| Beverages(a) | | Convenient Foods | | Beverages(a) | | Convenient Foods |
LatAm | 10 | % | | 90 | % | | 10 | % | | 90 | % |
Europe | 50 | % | | 50 | % | | 55 | % | | 45 | % |
AMESA | 30 | % | | 70 | % | | 35 | % | | 65 | % |
APAC | 25 | % | | 75 | % | | 25 | % | | 75 | % |
PepsiCo | 45 | % | | 55 | % | | 45 | % | | 55 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 36 Weeks Ended | | | | | |
| 9/9/2023 | | 9/3/2022 | | | | | |
| Beverages(a) | | Convenient Foods | | Beverages(a) | | Convenient Foods | | | | | |
LatAm | 10 | % | | 90 | % | | 10 | % | | 90 | % | | | | | |
Europe | 50 | % | | 50 | % | | 50 | % | | 50 | % | | | | | |
AMESA | 30 | % | | 70 | % | | 35 | % | | 65 | % | | | | | |
APAC | 25 | % | | 75 | % | | 25 | % | | 75 | % | | | | | |
PepsiCo | 40 | % | | 60 | % | | 45 | % | | 55 | % | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
(a)Beverage revenue from company-owned bottlers, which primarily includes our consolidated bottling operations in our PBNA and Europe divisions, is over 35% of our consolidated net revenue in the 12 weeks ended September 9, 2023, approximately 35% of our consolidated net revenue in the 36 weeks ended September 9, 2023, and approximately 40% of our consolidated net revenue in the 12 and 36 weeks ended September 3, 2022. Generally, our finished goods beverage operations produce higher net revenue but lower operating margin as compared to concentrate sold to authorized bottling partners for the manufacture of finished goods beverages.
Operating profit of each division is as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| 12 Weeks Ended | | 36 Weeks Ended |
| 9/9/2023 | | 9/3/2022 | | 9/9/2023 | | 9/3/2022 |
FLNA | $ | 1,669 | | | $ | 1,588 | | | $ | 4,915 | | | $ | 4,332 | |
QFNA | 135 | | | 122 | | | 452 | | | 416 | |
PBNA (a) (b) (c) | 970 | | | 784 | | | 2,176 | | | 4,869 | |
LatAm (d) | 593 | | | 463 | | | 1,549 | | | 1,206 | |
Europe (a) (e) (f) | 659 | | | 564 | | | 1,206 | | | (369) | |
AMESA | 238 | | | 268 | | | 656 | | | 738 | |
APAC | 239 | | | 199 | | | 689 | | | 620 | |
Total divisions | 4,503 | | | 3,988 | | | 11,643 | | | 11,812 | |
Corporate unallocated expenses (g) (h) | (488) | | | (635) | | | (1,340) | | | (1,115) | |
Total | $ | 4,015 | | | $ | 3,353 | | | $ | 10,303 | | | $ | 10,697 | |
(a)In the 12 weeks ended September 3, 2022, we recorded a charge of $8 million and $6 million in our PBNA and Europe divisions, respectively, associated with the Juice Transaction. The total after-tax amount was $11 million or $0.01 per share. In the 36 weeks ended September 3, 2022, we recorded a gain of $3,029 million and $292 million in our PBNA and Europe divisions, respectively, associated with the Juice Transaction. The total after-tax amount was $2,869 million or $2.07 per share. See Note 12 for further information.
(b)In the 36 weeks ended September 3, 2022, we terminated our agreement with Vital Pharmaceuticals, Inc. (Vital) to distribute Bang Energy drinks in our PBNA division. As a result, in the 12 weeks ended September 3, 2022, we recognized pre-tax brand portfolio impairment charges of $9 million ($7 million after-tax or $0.01 per share) related to the write-down of inventory in cost of sales. In the 36 weeks ended September 3, 2022, we recognized pre-tax brand portfolio impairment charges of $150 million ($114 million after-tax or $0.08 per share) primarily related to the write-off of distribution rights, with $17 million recorded in cost of sales, $7 million recorded in selling, general and administrative expenses and $126 million recorded in impairment of intangible assets.
(c)In the 36 weeks ended September 9, 2023, we recorded our proportionate share of TBG’s earnings, which includes an impairment of TBG’s indefinite-lived intangible assets, and recorded an other-than-temporary impairment of our investment, both of which resulted in pre-tax impairment charges of $113 million ($86 million after-tax or $0.06 per share), recorded in selling, general and administrative expenses. See Note 9 for further information.
(d)In the 36 weeks ended September 3, 2022, we made the decision to sell or discontinue certain non-strategic brands in our LatAm division. As a result, we recognized pre-tax brand portfolio impairment charges of $83 million ($56 million after-tax or $0.04 per share) primarily related to property, plant and equipment and intangible assets, with $47 million recorded in selling, general and administrative expenses and $36 million recorded in impairment of intangible assets.
(e)In the 12 weeks ended September 3, 2022, we recognized net pre-tax income of $4 million ($5 million after-tax with a nominal amount per share) as a result of the Russia-Ukraine conflict, with $5 million of income recorded in selling, general and administrative expenses, partially offset by $1 million of expense recorded in cost of sales. The amounts recorded in selling, general and administrative expenses represent recovery of previously recorded amounts for allowance for expected credit losses of $9 million, partially offset by pre-tax impairment charges related to property, plant and equipment of $2 million and other costs of $2 million. The amount recorded in cost of sales represents allowance for inventory write-downs. In the 36 weeks ended September 3, 2022, we recognized pre-tax charges of $1,402 million ($1,163 million after-tax or $0.84 per share) as a result of the Russia-Ukraine conflict, with $134 million recorded in cost of sales, $70 million recorded in selling, general and administrative expenses and $1,198 million recorded in impairment of intangible assets. The amounts recorded in cost of sales and selling, general and administrative expenses include impairment charges related to property, plant and equipment of $125 million, allowance for expected credit losses of $17 million, allowance for inventory write-downs of $26 million and other costs of $36 million. See Note 4 for further information. For information on indefinite-lived intangible assets, see Notes 2 and 4 to our consolidated financial statements in our 2022 Form 10-K.
(f)In the 36 weeks ended September 3, 2022, we recognized pre-tax brand portfolio impairment charges of $241 million ($193 million after-tax or $0.14 per share) in impairment of intangible assets, related to the repositioning or discontinuation of certain juice and dairy brands in Russia. See Note 4 for further information. For information on indefinite-lived intangible assets, see Notes 2 and 4 to our consolidated financial statements in our 2022 Form 10-K.
(g)In the 36 weeks ended September 9, 2023, we recorded a pre-tax gain of $85 million ($65 million after-tax or $0.05 per share) in selling, general and administrative expenses as a result of the sale of a corporate asset.
(h)In the 36 weeks ended September 3, 2022, we recorded a pre-tax loss on certain equity investments of $68 million ($51 million after-tax or $0.04 per share) in selling, general and administrative expenses.
A summary of pre-tax charges related to the impairment of intangible assets is as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 12 Weeks Ended | | 36 Weeks Ended |
| 9/9/2023 | | 9/3/2022 | | 9/9/2023 | | | | | | | | 9/3/2022 |
| | | | | | | | | | | | | |
Russia-Ukraine conflict impairment charges | $ | — | | | $ | — | | | $ | — | | | | | | | | | $ | 1,198 | |
Brand portfolio impairment charges | — | | | 1 | | | — | | | | | | | | | 404 | |
Other impairment charges | 6 | | | — | | | 6 | | | | | | | | | — | |
Total | $ | 6 | | | $ | 1 | | | $ | 6 | | | | | | | | | $ | 1,602 | |
Note 2 - Recently Issued Accounting Pronouncements
Adopted
In September 2022, the Financial Accounting Standards Board issued guidance to enhance the transparency of supplier finance programs to allow financial statement users to understand the effect on working capital, liquidity and cash flows. The new guidance requires disclosure of key terms of the program, including a description of the payment terms, payment timing and assets pledged as security or other forms of guarantees provided to the finance provider or intermediary. Other requirements include the disclosure of the amount that remains unpaid as of the end of the reporting period, a description of where these obligations are presented in the balance sheet and a rollforward of the obligation during the annual period. We adopted the guidance in the first quarter of 2023, except for the rollforward, which is effective in fiscal year 2024 with early adoption permitted. We currently plan to adopt the rollforward guidance when effective. See Note 13 for disclosures currently required under this guidance.
Note 3 - Restructuring and Impairment Charges
2019 Multi-Year Productivity Plan
We publicly announced a multi-year productivity plan on February 15, 2019 (2019 Productivity Plan) that will leverage new technology and business models to further simplify, harmonize and automate processes; re-engineer our go-to-market and information systems, including deploying the right automation for each market; and simplify our organization and optimize our manufacturing and supply chain footprint. To build on the successful implementation of the 2019 Productivity Plan, in 2022, we expanded and extended the plan through the end of 2028 to take advantage of additional opportunities within the initiatives described above. As a result, we expect to incur pre-tax charges of approximately $3.65 billion, including cash expenditures of approximately $2.9 billion. These pre-tax charges are expected to consist of approximately 55% of severance and other employee-related costs, 10% for asset impairments (all non-cash) resulting from plant closures and related actions, and 35% for other costs associated with the implementation of our initiatives.
The total plan pre-tax charges are expected to be incurred by division approximately as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| FLNA | | QFNA | | PBNA | | LatAm | | Europe | | AMESA | | APAC | | Corporate |
Expected pre-tax charges | 15 | % | | 1 | % | | 25 | % | | 10 | % | | 25 | % | | 5 | % | | 4 | % | | 15 | % |
A summary of our 2019 Productivity Plan charges is as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| 12 Weeks Ended | | 36 Weeks Ended |
| 9/9/2023 | | 9/3/2022 | | 9/9/2023 | | 9/3/2022 |
Cost of sales | $ | 4 | | | $ | 1 | | | $ | 10 | | | $ | 6 | |
Selling, general and administrative expenses | 79 | | | 50 | | | 278 | | | 117 | |
Other pension and retiree medical benefits (income)/expense (a) | — | | | — | | | (1) | | | 3 | |
Total restructuring and impairment charges | $ | 83 | | | $ | 51 | | | $ | 287 | | | $ | 126 | |
After-tax amount | $ | 67 | | | $ | 40 | | | $ | 228 | | | $ | 101 | |
Impact on net income attributable to PepsiCo per common share | $ | (0.05) | | | $ | (0.03) | | | $ | (0.16) | | | $ | (0.07) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 12 Weeks Ended | | 36 Weeks Ended | | Plan to Date |
| 9/9/2023 | | 9/3/2022 | | 9/9/2023 | | 9/3/2022 | | through 9/9/2023 |
FLNA | $ | 6 | | | $ | 4 | | | $ | 19 | | | $ | 10 | | | $ | 229 | |
QFNA | — | | | 1 | | | — | | | 1 | | | 19 | |
PBNA | 8 | | | 4 | | | 18 | | | 9 | | | 244 | |
LatAm | 8 | | | 3 | | | 19 | | | 17 | | | 190 | |
Europe | 44 | | | 21 | | | 185 | | | 40 | | | 528 | |
AMESA | 5 | | | — | | | 10 | | | 5 | | | 92 | |
APAC | 2 | | | 4 | | | 7 | | | 8 | | | 84 | |
Corporate | 10 | | | 14 | | | 30 | | | 33 | | | 259 | |
| 83 | | | 51 | | | 288 | | | 123 | | | 1,645 | |
Other pension and retiree medical benefits (income)/expense (a) | — | | | — | | | (1) | | | 3 | | | 97 | |
Total | $ | 83 | | | $ | 51 | | | $ | 287 | | | $ | 126 | | | $ | 1,742 | |
(a)Income amount represents adjustments for changes in estimates of previously recorded amounts.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 12 Weeks Ended | | 36 Weeks Ended | | Plan to Date |
| 9/9/2023 | | 9/3/2022 | | 9/9/2023 | | 9/3/2022 | | through 9/9/2023 |
Severance and other employee costs | $ | 39 | | | $ | 10 | | | $ | 181 | | | $ | 41 | | | $ | 988 | |
Asset impairments | 1 | | | 7 | | | 1 | | | 7 | | | 191 | |
Other costs | 43 | | | 34 | | | 105 | | | 78 | | | 563 | |
Total | $ | 83 | | | $ | 51 | | | $ | 287 | | | $ | 126 | | | $ | 1,742 | |
Severance and other employee costs primarily include severance and other termination benefits, as well as voluntary separation arrangements. Other costs primarily include costs associated with the implementation of our initiatives, including contract termination costs, consulting and other professional fees.
A summary of our 2019 Productivity Plan activity for the 36 weeks ended September 9, 2023 is as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| Severance and Other Employee Costs | | Asset Impairments | | Other Costs | | Total |
Liability as of December 31, 2022 | $ | 188 | | | $ | — | | | $ | 8 | | | $ | 196 | |
2023 restructuring charges | 181 | | | 1 | | | 105 | | | 287 | |
Cash payments | (174) | | | — | | | (109) | | | (283) | |
Non-cash charges and translation | (8) | | | (1) | | | 1 | | | (8) | |
Liability as of September 9, 2023 | $ | 187 | | | $ | — | | | $ | 5 | | | $ | 192 | |
The majority of the restructuring accrual at September 9, 2023 is expected to be paid by the end of 2023.
Other Productivity Initiatives
There were no charges related to other productivity and efficiency initiatives outside the scope of the 2019 Productivity Plan.
We regularly evaluate different productivity initiatives beyond the productivity plan and other initiatives described above.
See Notes 1, 4 and 9 for impairment and other charges/credits taken related to the Russia-Ukraine conflict, brand portfolio impairment charges and other impairment charges.
Note 4 - Intangible Assets
During the 36 weeks ended September 3, 2022, macroeconomic factors, sanctions and other regulations as a result of the Russia-Ukraine conflict indicated a material deterioration of the significant inputs used to determine the fair value of our indefinite-lived intangible assets in Russia, primarily assumptions underlying the weighted-average cost of capital. These factors required us to perform a quantitative assessment, despite the absence of a material adverse impact on these assets’ financial performance (e.g., sales, operating profit, cash flows).
The fair value of our indefinite-lived intangible assets in Russia was estimated using discounted cash flows under the income approach, which we consider to be a Level 3 measurement. We determined that the carrying value exceeded the fair value, with the decrease in the fair value primarily attributable to a significant increase in the weighted-average cost of capital, which reflects the macroeconomic uncertainty in Russia. As a result of the quantitative assessment, in the 36 weeks ended September 3, 2022, we recorded pre-tax impairment charges of $1.2 billion ($958 million after-tax or $0.69 per share) in impairment of intangible assets, related to our juice and dairy brands in Russia in our Europe division. See Note 1 for further information.
During the 36 weeks ended September 3, 2022, we repositioned or discontinued certain juice and dairy brands in Russia in our Europe division. As a result, we recognized pre-tax impairment charges (included in brand portfolio impairment charges) of $241 million ($193 million after-tax or $0.14 per share) in impairment of intangible assets, primarily related to indefinite-lived intangible assets. See Note 1 for further information.
For further information on indefinite-lived intangible assets, see Notes 2 and 4 to our consolidated financial statements in our 2022 Form 10-K.
A summary of our amortizable intangible assets is as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 9/9/2023 | | 12/31/2022 |
| | Gross | | Accumulated Amortization | | Net | | Gross | | Accumulated Amortization | | Net |
Acquired franchise rights | | $ | 833 | | | $ | (207) | | | $ | 626 | | | $ | 837 | | | $ | (200) | | | $ | 637 | |
Customer relationships | | 550 | | | (249) | | | 301 | | | 571 | | | (237) | | | 334 | |
Brands | | 1,084 | | | (978) | | | 106 | | | 1,097 | | | (973) | | | 124 | |
Other identifiable intangibles | | 444 | | | (269) | | | 175 | | | 447 | | | (265) | | | 182 | |
Total | | $ | 2,911 | | | $ | (1,703) | | | $ | 1,208 | | | $ | 2,952 | | | $ | (1,675) | | | $ | 1,277 | |
The change in the book value of indefinite-lived intangible assets is as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Balance 12/31/2022 | | Acquisitions | | | | Translation and Other | | Balance 9/9/2023 |
| | | | |
FLNA | | | | | | | | | |
Goodwill | $ | 451 | | | $ | — | | | | | $ | (1) | | | $ | 450 | |
Brands | 251 | | | — | | | | | — | | | 251 | |
Total | 702 | | | — | | | | | (1) | | | 701 | |
QFNA | | | | | | | | | |
Goodwill | 189 | | | — | | | | | — | | | 189 | |
Total | 189 | | | — | | | | | — | | | 189 | |
PBNA | | | | | | | | | |
Goodwill | 11,947 | | | 4 | | | | | (4) | | | 11,947 | |
Reacquired franchise rights | 7,061 | | | 36 | | | | | (8) | | | |