Shares of PepsiCo (NYSE:PEP) edged lower in early trading on Thursday after the food and beverage company reported fourth-quarter and full-year earnings. The results came in pretty much as expected by both analysts and PepsiCo management: the company reported decent organic revenue growth, decent earnings growth, and a strong increase in cash flow for the year as it moves forward with structural and strategic changes.
Organic revenue increased 4.1 percent on the year in the fourth-quarter, but net revenue increased just 1 percent. “Structural changes, principally the refranchising of the company’s beverage operations in Vietnam, negatively impacted reported net revenue performance by 1 percentage point,” PepsiCo commented in its earnings release, “and foreign exchange translation had a 3-percentage-point unfavorable impact on reported net revenue in the quarter.” Net revenue came in at $20.12 billion, edging out the mean analyst estimate by a fraction.
Revenues grew by the same scale for 2013 as a whole. Full-year organic revenue grew 4 percent on the back of effective net pricing. Net revenue increased 1 percent for the year, weathered by the same headwinds that eroded the fourth-quarter figure, falling at $66.42 billion, missing the mean analyst estimate by a fraction.
Net income increased 6 percent on the year in the fourth-quarter to $1.12 per diluted share, which beats the mean analyst estimate of $1.01 per share. Full-year earnings increased 10 percent to $4.32 per share, or $4.37 per share after adjustments, which compares to the mean analyst estimate of $4.32 per share.
PepsiCo made a couple of big announcements alongside its earnings report. First, the company announced a five-year, $5 billion cost-savings program. The program will accelerate investment in manufacturing automation and close certain manufacturing facilities. “As a result of these actions,” the company commented, “it expects to sustain approximately $1 billion in annual productivity savings through 2019.”
Second, PepsiCo announced that it will be increasing cash returns to shareholders by 35 percent in 2014. Cash flow increased 10 percent in 2013 to $8.2 billion, and it’s expecting free cash flow of about $10 billion in 2014, plenty enough to fund the program. Net capital spending is expected at just $3 billion for the coming year, “within the company’s long-term capital spending target of less than or equal to 5 percent of net revenue.” The shareholder return program includes a 15 percent increase in its annualized dividend to $2.62 per share, up from $2.27 per share, which will take effect with the June payment.
But all this still wasn’t enough to appease investors. Shares fell with the rest of the market on Thursday morning, off about 1 percent at the open.