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Operating Profit Declines as PepsiCo Announces $2.5 Billion Restructuring Programme

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Operating Profit Declines as PepsiCo Announces $2.5 Billion Restructuring Programme

Operating Profit Declines as PepsiCo Announces $2.5 Billion Restructuring Programme
February 21
12:26 2019

PepsiCo has reported a 2% increase in net net revenue to $64.66 billion and a 2% drop in operating profit to $10.11 billion for 2018. However, organic revenue, which excludes the impacts of foreign exchange translation, acquisitions, divestitures, structural and other changes, grew 4% and and core constant currency operating profit increased 2%.

Commodity mark-to-market net impacts and merger and integration charges related to PepsiCo’s acquisition of SodaStream negatively impacted reported operating profit performance by 2 percentage points and 1 percentage point, respectively. Reported operating margin contracted 55 basis points and core operating margin contracted 10 basis points.

Ramon Laguarta.

“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,” says Ramon Laguarta, chairman and chief executive of PepsiCo. “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.”

He continues: “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, he expects 4% organic revenue growth and approximately 1% decline in core constant currency EPS. The 2019 EPS performance will be impacted by incremental investments that are intended to further strengthen the business, lapping a number of 2018 strategic asset sales 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,” he adds.

PepsiCo is projecting long-term financial performance of 4-6% organic revenue growth and core operating margin expansion of 20 to 30 basis points.

PepiCo has just announced a new restructuring programme that will result in factory closures and job losses. Pre-tax restructuring charges of $2.5 billion are anticipated up to 2023. Restructuring costs in 2018 amounted to $138 million and this is expected to rise to $800 million in 2019.

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