PepsiCo(PEP) - 2024 Q4 - Annual Report

Part I Item 1. Business PepsiCo is a global beverage and food company with iconic brands, realigning segments in Q1 2025, and focusing on sustainability and key customer relationships - PepsiCo is a global beverage and convenient food company with operations in over 200 countries and territories, featuring brands like Lay's, Doritos, Gatorade, and Pepsi-Cola[12] - The company is organized into seven reportable segments: Frito-Lay North America (FLNA), Quaker Foods North America (QFNA), PepsiCo Beverages North America (PBNA), Latin America (LatAm), Europe, Africa, Middle East and South Asia (AMESA), and Asia Pacific (APAC)[13][18] - Effective Q1 2025, PepsiCo will realign its reportable segments, combining FLNA and QFNA into PepsiCo Foods North America, and reorganizing international businesses into Latin America Foods, EMEA, Other International Foods, and International Beverages Franchise[23][24][25] - Sales to Walmart Inc. and its affiliates represented approximately 14% of PepsiCo's consolidated net revenue in 2024, making it a key customer whose loss would materially impact the FLNA, QFNA, and PBNA divisions[41] - The company's primary beverage competitor is The Coca-Cola Company, with PepsiCo and Coca-Cola representing approximately 18% and 21%, respectively, of the U.S. liquid refreshment beverage market by estimated retail sales in 2024[42][43] - As of December 28, 2024, PepsiCo employed approximately 319,000 people worldwide, with 134,000 in the United States[56] Item 1A. Risk Factors PepsiCo faces significant business, financial, legal, tax, and regulatory risks, including consumer shifts, supply chain, and new product taxes - Business risks include reduced demand from evolving consumer preferences (e.g., health trends, weight-loss drugs), damage to brand reputation, product recalls, intense competition, failure to attract and retain a skilled workforce, water scarcity, and disruptions in the supply chain or manufacturing operations[65][66][67] - The company faces risks from political, social, and geopolitical conditions, such as the ongoing conflicts in Ukraine and the Middle East, which can impact operations, consumer sentiment, and cause asset loss[77] - Cybersecurity incidents, including cyberattacks and system disruptions, pose a significant risk to operations, data security, and financial records, with the rapid adoption of AI potentially increasing these threats[82][84] - Financial risks include the failure to realize benefits from productivity initiatives, potential impairment charges on goodwill and other assets due to deteriorating business performance estimates, and adverse impacts from foreign exchange rate fluctuations[95][96][97] - Legal, tax, and regulatory risks are significant, including the imposition of new taxes on products based on ingredients like sugar or sodium, limitations on marketing, regulations on plastic packaging, and evolving personal data protection laws like GDPR and CCPA[99][101][102] Item 1B. Unresolved Staff Comments The company reports that it has no unresolved written comments from the SEC staff that were issued 180 days or more before the end of the 2024 fiscal year - PepsiCo has no unresolved written comments from the SEC staff as of the reporting date[110] Item 1C. Cybersecurity PepsiCo manages cybersecurity risk through an enterprise-wide framework aligned with NIST standards, overseen by the Board of Directors - PepsiCo's cybersecurity program is based on the NIST framework and includes internal and third-party penetration testing, tabletop exercises, and employee training to mitigate risks[112] - The Board of Directors maintains direct oversight over cybersecurity matters, receiving regular updates from management, including the Chief Strategy and Transformation Officer and the Chief Information Security Officer[117] - The company has an incident response plan to manage cybersecurity events, coordinating activities across various corporate functions to detect, respond to, and recover from incidents[114] - As of the filing date, PepsiCo does not believe that risks from cybersecurity threats have not materially affected or are reasonably likely to materially affect its business, operations, or financial condition[115][116] Item 2. Properties PepsiCo's principal corporate properties are owned facilities in Purchase, New York, and Plano, Texas, supported by a global network of owned and leased operational facilities - The company's principal executive offices are located in Purchase, NY, and Plano, TX, both of which are owned[121] - PepsiCo operates a vast network of owned and leased manufacturing plants, warehouses, distribution centers, and R&D facilities globally to support its divisions[122][123] Item 3. Legal Proceedings PepsiCo is involved in plastic pollution lawsuits, with the New York case dismissed but under appeal, and management expects no material adverse effect - PepsiCo is involved in litigation concerning plastic pollution, with lawsuits filed by New York State, Baltimore, and Los Angeles County[124][129] - The lawsuit filed by the Attorney General of New York was dismissed in November 2024 but is currently being appealed by the plaintiff[124] - Management does not expect the outcome of current litigation, including the plastic pollution lawsuits, to have a material adverse effect on the company's financial condition, results of operations, or cash flows[127] Item 4. Mine Safety Disclosures This item is not applicable to PepsiCo - Not applicable[128] Information About Our Executive Officers This section lists the names, ages, and professional backgrounds of PepsiCo's current executive officers, including Chairman and CEO Ramon L. Laguarta and CFO James T. Caulfield - The report provides a detailed list of current executive officers, their ages, titles, and professional histories[129] - Key executives include Ramon L. Laguarta (Chairman & CEO), James T. Caulfield (EVP & CFO), and several CEOs for the company's various business segments[129][133] Part II Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities PepsiCo's common stock (PEP) is principally traded on the Nasdaq, with a long history of quarterly dividends and plans to return approximately $8.6 billion to shareholders in 2025 - PepsiCo has paid consecutive quarterly cash dividends since 1965 and announced a 5% increase in its annualized dividend to $5.69 per share, effective June 2025[143] - The company plans to return approximately $8.6 billion to shareholders in 2025, consisting of $7.6 billion in dividends and $1.0 billion in share repurchases[143] Issuer Purchases of Equity Securities (Q4 2024) | Period | Total Shares Repurchased (Millions) | Average Price Per Share (USD) | Total Cost (Millions USD) | | :--- | :--- | :--- | :--- | | 9/8/2024-10/5/2024 | 0.7 | $172.85 | $121 | | 10/6/2024-11/2/2024 | 0.2 | $171.08 | $36 | | 11/3/2024-11/30/2024 | 0.3 | $162.42 | $51 | | 12/1/2024-12/28/2024 | 0.2 | $159.84 | $30 | | Total Q4 2024 | 1.4 | $168.51 | $238 | - Share repurchases are conducted under a $10 billion program authorized in February 2022, which expires in February 2026, with approximately $6.5 billion remained available for repurchases as of the end of Q4 2024[145][147] Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations PepsiCo's 2024 net revenue was flat at $91.9 billion, operating profit grew 8% to $12.9 billion due to pricing, offset by volume declines, while focusing on its pep+ strategy and managing global risks Our Business PepsiCo's pep+ strategy drives sustainable growth and portfolio evolution, adapting to global challenges through innovation and reorganization, while managing risks like commodity volatility and geopolitical instability - The company's strategy, pep+ (PepsiCo Positive), focuses on transforming the supply chain, evolving the product portfolio, and building capabilities to drive sustainable growth and value[153][154] - PepsiCo is reorganizing its U.S. Foods and Beverages businesses into a unified North America Region to enhance scale and synergies, while international operations are also being realigned to manage food and beverage categories distinctly[159][160] - The company faces ongoing risks from higher operating costs, including transportation and labor, and manages commodity price volatility through fixed-price contracts, derivatives, and other hedging strategies[166] - Operations in Russia accounted for 4% of consolidated net revenue in 2024, while operations in Ukraine accounted for less than 1%, with the company continuing to monitor geopolitical conflict risks[171] Our Financial Results In 2024, PepsiCo's net revenue was flat at $91.9 billion, operating profit grew 8% to $12.9 billion, and diluted EPS rose 6% to $6.95, driven by pricing despite volume declines, with $12.5 billion cash from operations Consolidated Financial Highlights (in millions, except per share data) | Metric | 2024 | 2023 | % Change | | :--- | :--- | :--- | :--- | | Net Revenue | $91,854 | $91,471 | 0% | | Operating Profit | $12,887 | $11,986 | 8% | | Operating Margin | 14.0% | 13.1% | +0.9 ppts | | Net Income (attributable to PepsiCo) | $9,578 | $9,074 | 5.5% | | Diluted EPS | $6.95 | $6.56 | 6% | - Operating profit growth was primarily driven by effective net pricing, productivity savings, and a favorable comparison to prior-year impairment charges, partially offset by organic volume decline, higher operating costs, and impairment charges related to the Tropicana Brands Group (TBG) investment[198] Organic Performance by Division (2024) | Division | Reported Revenue % Change | Organic Revenue % Change | Organic Volume % Change | Effective Net Pricing % Change | | :--- | :--- | :--- | :--- | :--- | | FLNA | (1)% | (0.5)% | (2.5)% | 2% | | QFNA | (14)% | (14)% | (14)% | 0.5% | | PBNA | 0.5% | 1% | (3.5)% | 4% | | LatAm | 0.5% | 4% | (2)% | 5% | | Europe | 5% | 7% | 2% | 6% | | AMESA | 1% | 10% | 1% | 9% | | APAC | 1% | 3% | 4% | (1)% | | Total | 0% | 2% | (2)% | 4% | - Net cash provided by operating activities was $12.5 billion in 2024, a decrease from $13.4 billion in 2023, primarily due to unfavorable working capital comparisons[260] - The company returned $8.2 billion to shareholders in 2024 through dividends and share repurchases[263] Our Critical Accounting Policies and Estimates PepsiCo's critical accounting policies involve significant judgment in revenue recognition, goodwill impairment, income tax, and pension estimates - Revenue Recognition: Revenue is recognized upon shipment or delivery, requiring estimates for sales incentives, discounts, and reserves for product returns and credit losses[276][280] - Goodwill and Intangible Assets: Goodwill and indefinite-lived intangibles are tested for impairment annually using qualitative or quantitative assessments, with the quantitative test relying on discounted cash flow analysis that requires significant estimates of future cash flows, growth rates, and discount rates[286][287] - As of December 28, 2024, the estimated fair value of the SodaStream reporting unit narrowly exceeded its carrying value, indicating a risk of future impairment if performance or macroeconomic conditions worsen[288] - Income Taxes: The annual tax rate is based on income, statutory rates, and tax structures across various jurisdictions, with the company establishing reserves for uncertain tax positions that are subject to challenge[290] - Pension and Retiree Medical Plans: The determination of pension expenses and obligations requires significant assumptions regarding discount rates, expected rate of return on plan assets, and employee demographic factors[296][297] Item 7A. Quantitative and Qualitative Disclosures About Market Risk This section refers to the market risk disclosures provided within "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations – Our Business Risks" - Information regarding market risk is included in Item 7 of this report[550] Item 8. Financial Statements and Supplementary Data This section presents PepsiCo's audited consolidated financial statements for 2022-2024, including Statements of Income, Balance Sheet, Cash Flows, and Equity, with notes and auditor's report Consolidated Statement of Income For the fiscal year 2024, PepsiCo reported net revenue of $91.85 billion, a slight increase from $91.47 billion in 2023, with operating profit rising to $12.89 billion and diluted EPS at $6.95 Consolidated Statement of Income Highlights (in millions, except per share data) | Metric | 2024 | 2023 | 2022 | | :--- | :--- | :--- | :--- | | Net Revenue | $91,854 | $91,471 | $86,392 | | Gross Profit | $50,110 | $49,590 | $45,816 | | Operating Profit | $12,887 | $11,986 | $11,512 | | Net Income Attributable to PepsiCo | $9,578 | $9,074 | $8,910 | | Diluted EPS | $6.95 | $6.56 | $6.42 | Consolidated Balance Sheet As of December 28, 2024, PepsiCo had total assets of $99.47 billion, total liabilities of $81.30 billion, and total common shareholders' equity of $18.04 billion Consolidated Balance Sheet Highlights (in millions) | Metric | Dec 28, 2024 | Dec 30, 2023 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $8,505 | $9,711 | | Total Current Assets | $25,826 | $26,950 | | Goodwill & Other Indefinite-Lived Intangibles | $31,233 | $31,458 | | Total Assets | $99,467 | $100,495 | | Liabilities & Equity | | | | Short-term debt obligations | $7,082 | $6,510 | | Long-Term Debt Obligations | $37,224 | $37,595 | | Total Liabilities | $81,296 | $81,858 | | Total PepsiCo Common Shareholders' Equity | $18,041 | $18,503 | Consolidated Statement of Cash Flows For fiscal year 2024, PepsiCo generated $12.51 billion in net cash from operating activities, used $5.47 billion for investing, and $7.56 billion for financing, ending with $8.55 billion in cash Consolidated Statement of Cash Flows Highlights (in millions) | Metric | 2024 | 2023 | | :--- | :--- | :--- | | Net Cash Provided by Operating Activities | $12,507 | $13,442 | | Net Cash Used for Investing Activities | $(5,472) | $(5,495) | | Net Cash Used for Financing Activities | $(7,556) | $(3,009) | | Net (Decrease)/Increase in Cash | $(1,208) | $4,661 | | Cash and Cash Equivalents, End of Year | $8,553 | $9,761 | Notes to the Consolidated Financial Statements The notes detail PepsiCo's accounting policies and financial results, covering segment realignment, a $6.15 billion productivity plan, impairment charges for SodaStream and TBG, tax rates, debt, and the Sabra acquisition - Note 3: The 2019 Multi-Year Productivity Plan was expanded and extended through 2030, with expected pre-tax charges increasing to approximately $6.15 billion from a previous estimate of $3.65 billion[368] - Note 4: In 2023, the company recorded pre-tax impairment charges of $0.9 billion related to the SodaStream brand and goodwill, with the fair value of the SodaStream reporting unit narrowly exceeding its carrying value at year-end 2024[380][378] - Note 9 & 13: The company recorded significant impairment charges on its investment in Tropicana Brands Group (TBG) in both 2023 ($321 million) and 2024 ($498 million) due to worsening operating losses and liquidity issues at TBG[482][483] - Note 13: On December 3, 2024, PepsiCo acquired the remaining 50% of Sabra Dipping Company for $241 million, making it a wholly-owned subsidiary and recognizing a pre-tax gain of $122 million on the remeasurement of its initial stake[505] Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure This item is not applicable to PepsiCo - Not applicable[550] Item 9A. Controls and Procedures Management concluded that PepsiCo's disclosure controls and internal control over financial reporting were effective as of December 28, 2024, despite ongoing ERP system and productivity plan updates - Management concluded that as of December 28, 2024, the company's disclosure controls and procedures were effective[551] - Management concluded that the company's internal control over financial reporting was effective as of December 28, 2024, a conclusion supported by an attestation report from KPMG LLP[552][553] - Changes to internal controls over financial reporting occurred during Q4 2024 due to the continued migration to a new ERP system and the implementation of the 2019 productivity plan, but these changes did not have a material adverse effect[554][556] Item 9B. Other Information During the fourth quarter of 2024, no directors or executive officers adopted, modified, or terminated a Rule 10b5-1 or non-Rule 10b5-1 trading arrangement - No directors or executive officers adopted, modified, or terminated a Rule 10b5-1 or non-Rule 10b5-1 trading arrangement in the fourth quarter of 2024[557] Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections This item is not applicable to PepsiCo - Not applicable[558] Part III Item 10. Directors, Executive Officers and Corporate Governance Information regarding directors, executive officers, corporate governance, the code of conduct, and the audit committee is incorporated by reference from the company's 2025 Proxy Statement - Information about directors, corporate governance, and the audit committee is incorporated by reference from the 2025 Proxy Statement[560][564] - The company has a Global Code of Conduct applicable to all employees and directors, which is available on its website[562] Item 11. Executive Compensation This section incorporates by reference information on director and executive officer compensation from the company's 2025 Proxy Statement - Details regarding executive and director compensation are incorporated by reference from the 2025 Proxy Statement[566] Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters This section incorporates by reference information on securities authorized for issuance under equity compensation plans and security ownership of beneficial owners and management from the company's 2025 Proxy Statement - Information on security ownership and equity compensation plans is incorporated by reference from the 2025 Proxy Statement[567][568] Item 13. Certain Relationships and Related Transactions, and Director Independence This section incorporates by reference information regarding related person transactions and director independence from the company's 2025 Proxy Statement - Details on related party transactions and director independence are incorporated by reference from the 2025 Proxy Statement[569] Item 14. Principal Accounting Fees and Services This section incorporates by reference information on principal accountant fees and services, as well as the Audit Committee's pre-approval policies, from the company's 2025 Proxy Statement - Information on principal accounting fees and services is incorporated by reference from the 2025 Proxy Statement[570] Part IV Item 15. Exhibits and Financial Statement Schedules This section lists the financial statements, financial statement schedules, and exhibits filed as part of the Form 10-K, including a detailed index of all exhibits - This item lists the financial statements and schedules included in the report and provides an index to all filed exhibits[573] Item 16. Form 10-K Summary No Form 10-K summary is provided - None[574]