Please ensure Javascript is enabled for purposes of website accessibility

PepsiCo Breaks Down Its Best Year Since 2015

By Demitri Kalogeropoulos – Updated Feb 20, 2020 at 4:56PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Management recently predicted another strong year of sales gains ahead.

PepsiCo (PEP -0.66%) isn't growing as quickly as its beverage-focused rival Coca-Cola (KO -0.95%), but the company is still enjoying its fastest expansion pace in years. That was the main takeaway from the soda and snack giant's recent fiscal fourth-quarter report, which also included an encouraging profit outlook for 2020.

In a conference call with Wall Street analysts, CEO Ramon Laguarta and his team broke down the main wins and losses that affected its recent operating performance while detailing their projection for the new year. Below are a few highlights.

A glass of soda.

Image source: Getty Images.

It was a very good year

Our organic revenue growth accelerated to 4.5% for the full year 2019 versus 3.7% in 2018, exceeding the initial target we set a year ago. All our divisions contributed to this growth.
-- Laguarta

The company noted several positive operating trends to close out the year, including accelerating volume growth in its core U.S. snack business. That boost delivered the unit's fastest annual expansion pace since 2013. 

The soda segment grew at a slower pace, 3% for the year compared with Coca-Cola's 6% organic sales spike. And Pepsi's soda gains came exclusively from higher prices rather than increased volumes. Still, it was the beverage unit's best performance since 2015, with standout gains in the Pepsi zero-sugar franchise and the Gatorade brand.

Elevated spending plans

We intend to continue to invest back in our business. We know that sustaining higher growth will require building stronger capabilities, ones which will be difficult to match by our competitors.
-- Laguarta

Management was happy to finally have some concrete benefits to point to from its elevated investment spending across areas like advertising, the supply chain, and the manufacturing base. These projects reduced free cash flow and resulted in slightly lower earnings for the year.

Yet executives drew a direct line between the initiatives and the accelerating growth pace. That progress was most notable in the Frito-Lay segment, which benefited from higher marketing, new warehouse and distribution centers, and additional selling displays.

Looking out to 2020

We expect total cash returns to shareholders of approximately $7.5 billion in 2020, comprised of dividends of $5.5 billion and share repurchases of $2 billion.
-- CFO Hugh Johnston

PepsiCo predicted a third consecutive year of roughly 4% organic sales growth, to trail Coke's 5% outlook for 2020. The company sees a return to robust earnings gains, though, as core profits rise 7% after falling 1% in 2019.

That profit boost will happen despite another year of elevated capital spending, to the tune of $5 billion, or roughly 7% of sales. Management sees this increased spending level as a new normal, at least until around 2023, when the company could see capital spending trend back down to roughly 5% of sales.

In the meantime, dividend investors can expect to see robust cash returns, partly through stock repurchases but mainly through a dividend that was just raised 7% to mark PepsiCo's 48th consecutive annual increase. Total returns in 2020 should reach $7.5 billion, versus $8.3 billion last year.

Demitrios Kalogeropoulos has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

PepsiCo Inc. Stock Quote
PepsiCo Inc.
PEP
$166.00 (-0.66%) $-1.11
Coca-Cola Stock Quote
Coca-Cola
KO
$56.24 (-0.95%) $0.54

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
342%
 
S&P 500 Returns
110%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 10/05/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.