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PepsiCo Reports Fourth-Quarter and Full-Year 2018 Results; Provides 2019 Financial OutlookReported (GAAP) Fourth Quarter and Full-Year 2018 Results

	Fourth Quarter	Full-Year
Net revenue change	—%	1.8%
Foreign exchange impact on net revenue	(4)%	(1)%
Earnings per share (EPS)	$4.83	$8.78
EPS change	Not meaningful*	160%
Foreign exchange impact on EPS	(3)%	(1)%

* EPS change not meaningful as fourth quarter 2018 earnings per share of $4.83 compares to fourth quarter 2017 loss per share of $(0.50). Fourth quarter 2017 results include a provisional net tax expense ($1.73 per share) as a result of the U.S. Tax Cuts and Jobs Act (TCJ Act) passed on December 22, 2017 and fourth quarter 2018 results include net tax benefits of $3.71 per share described on pages A-7 and A-8.Organic/Core (non-GAAP)¹ Fourth Quarter and Full-Year 2018 Results

	Fourth Quarter	Full-Year
Organic revenue growth	4.6%	3.7%
Core EPS	$1.49	$5.66
Core constant currency EPS growth	17%	9%

PURCHASE, N.Y. – February 15, 2019 – PepsiCo, Inc. (NASDAQ: PEP) today reported results for the fourth quarter and full year 2018.“We are pleased with our results for the fourth quarter and the full year 2018.  For the year we met or exceeded each of the financial objectives we set out at the beginning of the year.  Frito-Lay North America and each of our international sectors performed very well, and our North America Beverages sector made progress throughout the year,” said Chairman and CEO Ramon Laguarta.  “While adverse foreign exchange translation negatively impacted reported net revenue performance, our underlying organic revenue growth accelerated in the second half, and we ended the year with 4.6% organic revenue growth in the fourth quarter.  Furthermore, we are excited about the outlook for our business.  We are well positioned in large, growing categories and have developed strong and relevant capabilities over the years.  In 2019, we aim to capitalize on the momentum we have as we enter the year, and to continue to invest in the capabilities that will better position us for success for years to come.“For 2019, we expect 4% organic revenue growth and approximately 1% decline in core constant currency EPS.  Our 2019 EPS performance is expected to be impacted by incremental investments that are intended to further strengthen the business, lapping a number of 2018 strategic asset-sale and refranchising gains and an increased core effective tax rate in 2019.  Importantly, we expect to return to high-single-digit core constant currency EPS growth in 2020.”¹ Please refer to the Glossary for the definitions of non-GAAP financial measures including “Organic,” “Core,” “Constant Currency,” and “Free Cash Flow (excluding certain items).” Please refer to “2019 Guidance and Outlook” for additional information regarding PepsiCo’s full-year 2019 growth objectives and targets. PepsiCo provides guidance on a non-GAAP basis as the Company cannot predict certain elements which are included in reported GAAP results, including the impact of foreign exchange and commodity mark-to-market adjustments.

Summary of Fourth Quarter Financial Performance:

• Reported fourth-quarter and year-ago results were impacted by the following items which are excluded from core results. See A-6 to A-8 for further details.
  • ◦Merger and integration charges,
  • ◦charges related to bond cash tender and exchange offers,
  • ◦2018 net tax benefit and 2017 provisional net tax expense related to the TCJ Act,
  • ◦other net tax benefits resulting from the reorganization of our international operations,
  • ◦a non-cash state tax benefit resulting from our resolution with the Internal Revenue Service of all open matters related to the audits of taxable years 2012 and 2013 (the 2012 and 2013 audit resolution),
  • ◦restructuring charges, and
  • ◦commodity mark-to-market net impacts.
• Reported net revenue was even with the prior year. Foreign exchange translation had a 4-percentage-point unfavorable impact on reported net revenue performance and acquisitions and divestitures had an unfavorable impact of 1 percentage point. Organic revenue, which excludes the impacts of foreign exchange translation, acquisitions, divestitures, structural and other changes, grew 4.6 percent.
• Reported gross margin expanded 75 basis points and core gross margin expanded 90 basis points. Reported operating margin contracted 70 basis points and core operating margin expanded 55 basis points.
• Reported operating profit decreased 5 percent and core constant currency operating profit increased 7 percent. Commodity mark-to-market net impacts and restructuring charges negatively impacted reported operating profit performance by 5 percentage points and 1 percentage point, respectively. The impact of merger and integration charges related to the acquisition of SodaStream International Ltd. (SodaStream) and the prior year gain from the refranchising of a portion of our bottling operations in Jordan negatively impacted reported operating profit performance by 3 percentage points and 5 percentage points, respectively. A gain from the refranchising of our entire beverage bottling operations and snack distribution operations in Czech Republic, Hungary and Slovakia (CHS) positively impacted reported operating profit performance by 2 percentage points. Unfavorable foreign exchange translation reduced reported operating profit performance by 3 percentage points.
• The reported effective tax rate in the fourth quarter of 2018 was (254.8) percent and the core effective tax rate was 17.9 percent. The reported and core effective tax rates in the fourth quarter of 2017 were 129.8 and 25.0 percent, respectively. The fourth quarter 2018 reported effective tax rate reflects net tax benefits of $5.3 billion, collectively, associated with net tax benefits resulting from the reorganization of our international operations, a net tax benefit related to the TCJ Act and a non-cash state tax benefit from the 2012 and 2013 audit resolution. The fourth quarter 2017 reported effective tax rate reflects the impact of the provisional net tax expense of $2.5 billion as a result of the TCJ Act.
• Reported EPS was $4.83, an increase from the $0.50 loss per share in the fourth quarter of 2017. Foreign exchange translation negatively impacted reported EPS growth by 3 percentage points.
• Core EPS was $1.49. Excluding the impact of foreign exchange translation, core constant currency EPS increased 17 percent (see schedule A-11 for a reconciliation to reported EPS, the comparable GAAP measure).
• Net cash provided by operating activities was $4.7 billion.

Discussion of Fourth Quarter 2018 Reported Division Results:

Frito-Lay North America (FLNA): Operating profit grew 8%, reflecting net revenue growth and productivity savings, partially offset by certain operating cost increases.

Quaker Foods North America (QFNA): Operating profit grew 5%, reflecting productivity savings and lower advertising and marketing expenses, partially offset by certain operating cost increases and a 5-percentage-point impact of higher commodity costs.

North America Beverages (NAB): Operating profit declined 12%, reflecting certain operating cost increases, including increased transportation costs, a 9-percentage-point impact of higher commodity costs and higher advertising and marketing expenses. These impacts were partially offset by net revenue growth, productivity savings and a 4-percentage-point impact of prior-year hurricane-related costs.

Latin America: Operating profit grew 9%, reflecting effective net pricing and productivity savings, partially offset by certain operating cost increases, a 20-percentage-point impact of primarily foreign exchange-driven higher commodity costs and higher advertising and marketing expenses. Unfavorable foreign exchange reduced operating profit growth by 6 percentage points.

Europe Sub-Saharan Africa (ESSA): Operating profit grew 23%, reflecting effective net pricing, productivity savings, volume growth, a 15-percentage-point net impact of refranchising our entire beverage bottling operations and snack distribution operations in CHS and a 6-percentage-point impact of the sale of a portion of our water business in Russia. These impacts were partially offset by certain operating cost increases and a 19-percentage-point impact of primarily foreign exchange-driven higher commodity costs. Unfavorable foreign exchange reduced operating profit growth by 15 percentage points.

Asia, Middle East and North Africa (AMENA): Operating profit declined 46%, reflecting a 45-percentage-point impact of refranchising a portion of our Jordan beverage business in 2017, certain operating cost increases, higher advertising and marketing expenses and a 4-percentage-point impact of higher commodity costs. These impacts were partially offset by productivity savings and effective net pricing.

Summary of Full-Year 2018 Financial Performance:

•	Reported full-year 2018 and 2017 results were impacted by the following items which are excluded from core results. See A-6 to A-8 for further details.

◦	Merger and integration charges,

◦	charges related to bond cash tender and exchange offers,

◦	2018 net tax benefit and 2017 provisional net tax expense related to the TCJ Act,

◦	other net tax benefits resulting from the reorganization of our international operations,

◦	non-cash tax benefits resulting from the conclusion of certain international tax audits and the 2012 and 2013 audit resolution,

◦	restructuring charges, and

◦	commodity mark-to-market net impacts.

•	Reported net revenue increased 2 percent. Foreign exchange translation and acquisitions and divestitures each had an unfavorable impact of 1 percentage point. Organic revenue, which excludes the impacts of foreign exchange translation, acquisitions, divestitures, structural and other changes, grew 4 percent.

•	Reported gross margin contracted 10 basis points and core gross margin expanded 5 basis points. Reported operating margin contracted 55 basis points and core operating margin contracted 10 basis points.

•

Reported operating profit decreased 2 percent and core constant currency operating profit increased 2 percent. Commodity mark-to-market net impacts and merger and integration charges related to our acquisition of SodaStream negatively impacted reported operating profit performance by 2 percentage points and 1 percentage point, respectively. Restructuring charges had a nominal impact. Foreign exchange translation negatively impacted reported operating profit performance by 0.5 percentage points.

•

The reported effective tax rate in 2018 was (36.7) percent and core effective tax rate was 18.8 percent. The reported and core effective tax rates in 2017 were 48.9 and 23.3 percent, respectively. The 2018 reported effective tax rate reflects the impacts of $4.3 billion of net tax benefits resulting from the reorganization of our international operations, $717 million of non-cash tax benefits resulting from both the favorable conclusion of certain international tax audits and the 2012 and 2013 audit resolution and a $28 million net tax benefit related to the TCJ Act.

•	Reported EPS was $8.78, an increase of 160 percent. Foreign exchange translation negatively impacted reported EPS growth by 1 percentage point.

•	Core EPS was $5.66, an increase of 8 percent. Excluding the impact of foreign exchange translation, core constant currency EPS increased 9 percent (see schedule A-12 for a reconciliation to reported EPS, the comparable GAAP measure).

•	Net cash provided by operating activities was $9.4 billion. Free cash flow (excluding certain items) was $7.6 billion.

More details available from the SEC filing: 2018 Annual Report by PepsiCo