Securities registered pursuant to Section 12(g) of the Securities Exchange Act of 1934: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes x☒ No ¨
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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x☒ No ¨
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Large accelerated filerx | ☒ | Accelerated filer¨ | ☐ |
Non-accelerated filer¨ (Do not check if a smaller reporting company) | ☐ | Smaller reporting company¨ | ☐ |
| | Emerging growth company¨ | ☐ |
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The aggregate market value of PepsiCo, Inc. Common Stock held by nonaffiliates of PepsiCo, Inc. (assuming for these purposes, but without conceding, that all executive officers and directors of PepsiCo, Inc. are affiliates of PepsiCo, Inc.) as of June 16, 2017,2023, the last day of business of our most recently completed second fiscal quarter, was $166.5$255.9 billion (based on the closing sale price of PepsiCo, Inc.’s Common Stock on that date as reported on the New York Stock Exchange)Nasdaq Global Select Market).
The number of shares of PepsiCo, Inc. Common Stock outstanding as of February 6, 20182, 2024 was 1,419,908,267.1,374,429,271.
Documents Incorporated by Reference
Portions of the Proxy Statement relating to PepsiCo, Inc.’s 20182024 Annual Meeting of Shareholders are incorporated by reference into Part III of this Form 10-K.
PepsiCo, Inc.
Form 10-K Annual Report
For the Fiscal Year Ended December 30, 20172023
Table of Contents
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| PART I | | |
PART I | | |
| Item 1. | | |
| Item 1A. | | |
| Item 1B. | | |
Item 2.1C. | | |
| Item 2. | | |
| Item 3. | | |
| Item 4. | | |
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| PART II | | |
| Item 5. | | |
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Item 6.7. | | |
Item 7. | | |
| Item 7A. | | |
| Item 8. | | |
| Item 9. | | |
| Item 9A. | | |
| Item 9B. | | |
| Item 9C. | | |
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| PART III | | |
| Item 10. | | |
| Item 11. | | |
| Item 12. | | |
| Item 13. | | |
| Item 14. | | |
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| PART IV | | |
| Item 15. | | |
| Item 16. | | |
Forward-Looking Statements
This Annual Report on Form 10-K contains statements reflecting our views about our future performance that constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 (Reform Act). Statements that constitute forward-looking statements within the meaning of the Reform Act are generally identified through the inclusion of words such as “aim,” “anticipate,” “believe,” “drive,” “estimate,” “expect,” “expressed confidence,” “forecast,” “future,” “goal,” “guidance,” “intend,” “may,” “objective,” “outlook,” “plan,” “position,” “potential,” “project,” “seek,” “should,” “strategy,” “target,” “will” or similar statements or variations of such words and other similar expressions. All statements addressing our future operating performance, and statements addressing events and developments that we expect or anticipate will occur in the future, are forward-looking statements within the meaning of the Reform Act. These forward-looking statements are based on currently available information, operating plans and projections about future events and trends. They inherently involve risks and uncertainties that could cause actual results to differ materially from those predicted in any such forward-looking statement. These risks and uncertainties include, but are not limited to, those described in “Item 1A. Risk Factors” and “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations – Our Business – Our Business Risks.” Investors are cautioned not to place undue reliance on any such forward-looking statements, which speak only as of the date they are made. We undertake no obligation to update any forward-looking statement, whether as a result of new information, future events or otherwise. The discussion of risks below and elsewhere in this report is by no means all-inclusive but is designed to highlight what we believe are important factors to consider when evaluating our future performance.
PART I
Item 1. Business.
When used in this report, the terms “we,” “us,” “our,” “PepsiCo” and the “Company” mean PepsiCo, Inc. and its consolidated subsidiaries, collectively. Certain terms used in this Annual Report on Form 10-K are defined in the Glossary included in Item 7. of this report.
Company Overview
We were incorporated in Delaware in 1919 and reincorporated in North Carolina in 1986. We are a leading global foodbeverage and beverageconvenient food company with a complementary portfolio of enjoyable brands, including Frito-Lay,Lay’s, Doritos, Cheetos, Gatorade, Pepsi-Cola, Mountain Dew, Quaker and Tropicana.SodaStream. Through our operations, authorized bottlers, contract manufacturers and other third parties, we make, market, distribute and sell a wide variety of beverages and convenient and enjoyable beverages, foods, and snacks, serving customers and consumers in more than 200 countries and territories.
Our Operations
We are organized into sixseven reportable segments (also referred to as divisions), as follows:
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1) | 1)Frito-Lay North America (FLNA), which includes our branded food and snack businesses in the United States and Canada; |
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2) | Quaker Foods North America (QFNA), which includes our cereal, rice, pasta and other branded convenient food businesses in the United States and Canada; |
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3) | North America Beverages (NAB), which includes our beverage businesses in the United States and Canada; |
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4) | Latin America, which includes all of our beverage, food and snack businesses in Latin America; |
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5) | Europe Sub-Saharan Africa (ESSA), which includes all of our beverage, food and snack businesses in Europe and Sub-Saharan Africa; and |
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6) | Asia, Middle East and North Africa (AMENA), which includes all of our beverage, food and snack businesses in Asia, Middle East and North Africa. |
Our segment net revenue (in millions) and contributions to consolidated net revenue for each of the last three fiscal years were as follows:
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| | Net Revenue | | % of Total Net Revenue |
| | 2017 |
| | 2016(a) |
| | 2015 |
| | 2017 |
| | 2016 |
| | 2015 |
|
| FLNA | $ | 15,798 |
| | $ | 15,549 |
| | $ | 14,782 |
| | 25 | % | | 25 | % | | 23 | % |
| QFNA | 2,503 |
| | 2,564 |
| | 2,543 |
| | 4 |
| | 4 |
| | 4 |
|
| NAB | 20,936 |
| | 21,312 |
| | 20,618 |
| | 33 |
| | 34 |
| | 33 |
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| Latin America | 7,208 |
| | 6,820 |
| | 8,228 |
| | 11 |
| | 11 |
| | 13 |
|
| ESSA | 11,050 |
| | 10,216 |
| | 10,510 |
| | 17 |
| | 16 |
| | 17 |
|
| AMENA | 6,030 |
| | 6,338 |
| | 6,375 |
| | 10 |
| | 10 |
| | 10 |
|
| | $ | 63,525 |
| | $ | 62,799 |
| | $ | 63,056 |
| | 100 | % | | 100 | % | | 100 | % |
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(a) | Our fiscal 2016 results included an extra week of results (53rd reporting week). The 53rd reporting week increased 2016 net revenue by $657 million, including $294 million in our FLNA segment, $43 million in our QFNA segment, $300 million in our NAB segment and $20 million in our ESSA segment.
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See Note 1 to our consolidated financial statements for financial information about our divisions and geographic areas. See also “Item 1A. Risk Factors” below for a discussion of certain risks associated with our operations, including outside the United States.States and Canada;
2)Quaker Foods North America (QFNA), which includes our branded convenient food businesses, such as cereal, rice, pasta and other branded food, in the United States and Canada;
3)PepsiCo Beverages North America (PBNA), which includes our beverage businesses in the United States and Canada;
4)Latin America (LatAm), which includes all of our beverage and convenient food businesses in Latin America;
5)Europe, which includes all of our beverage and convenient food businesses in Europe;
6)Africa, Middle East and South Asia (AMESA), which includes all of our beverage and convenient food businesses in Africa, the Middle East and South Asia; and
7)Asia Pacific, Australia and New Zealand and China Region (APAC), which includes all of our beverage and convenient food businesses in Asia Pacific, Australia and New Zealand, and China region.
Frito-Lay North America
Either independently or in conjunction with third parties, FLNA makes, markets, distributes and sells branded snackconvenient foods. These foods include branded dips, Cheetos cheese-flavored snacks, Doritos tortilla chips, Fritos corn chips, Lay’s potato chips, Ruffles potato chips, Santitas tortilla chips and Tostitos tortilla chips. FLNA’s branded products are sold to independent distributors and retailers. In addition, FLNA’s joint venture with Strauss Group makes, markets, distributes and sells Sabra refrigerated dips and spreads.
Quaker Foods North America
Either independently or in conjunction with third parties, QFNA makes, markets, distributes and sells branded convenient foods, which include cereals, rice, pasta and other branded products. QFNA’s products include Aunt Jemima mixes and syrups, Cap’n Crunch cereal, Life cereal, Pearl Milling Company syrups and mixes, Quaker Chewy granola bars, Quaker grits, Quaker oat squares, Quaker oatmeal, Quaker rice cakes, Quaker simply granolaSimply Granola and Rice-A-Roni side dishes. TheseQFNA’s branded products are sold to independent distributors and retailers.
PepsiCo Beverages North America Beverages
Either independently or in conjunction with third parties, NABPBNA makes, markets and sells beverage concentrates, fountain syrups and finished goods under various beverage brands including Aquafina, Bubly, Diet Mountain Dew, Diet Pepsi, Gatorade, Mist Twst,Gatorade Zero, Mountain Dew, Pepsi Propel and Tropicana. NABPropel. PBNA operates its own bottling plants and distribution facilities and sells branded finished goods directly to independent distributors and retailers. PBNA also sells concentrate and finished goods for our brands to authorized and independent bottlers, who in turn sell our branded finished goods to independent distributors and retailers in certain markets. PBNA also, either independently or in conjunction with third parties, makes, markets, distributes and sells ready-to-drink tea and coffee products through joint ventures with Unilever (under the Lipton brand name) and Starbucks, respectively. Further, NABPBNA manufactures and distributes certain brands licensed from Keurig Dr Pepper Snapple Group, Inc. (DPSG), including Crush, Dr Pepper and Schweppes, and certain juice brands licensed from Dole Food Company, Inc. (Dole) and Ocean Spray Cranberries, Inc. (Ocean Spray). NAB operates its own bottling plantsIn 2022, PBNA began to distribute Hard MTN Dew, an alcoholic beverage manufactured and distribution facilitiesowned by the Boston Beer Company. In the first quarter of 2022, we sold our Tropicana, Naked and sells branded finished goods directly to independent distributors and retailers. NAB also sells concentrate and finished goods for ourother select juice brands to authorizedPAI Partners, while retaining a 39% noncontrolling interest in a newly formed joint venture, Tropicana Brands Group (TBG), operating across North America and independent bottlers, who in turn sellEurope (Juice Transaction). In the United States, PepsiCo acts as the exclusive distributor for TBG’s portfolio of brands for small-format and foodservice customers with chilled direct-store-delivery (DSD). See Note 13 to our branded finished goods to independent distributors and retailers in certain markets.consolidated financial statements for further information.
Latin America
Either independently or in conjunction with third parties, Latin AmericaLatAm makes, markets, distributes and sells a number of snackconvenient food brands including Cheetos, Doritos, Emperador, Lay’s, Marias Gamesa, Rosquinhas Mabel, Ruffles, Sabritas, Saladitas and Tostitos, as well as many Quaker-branded cereals and snacks. Latin Americaconvenient foods. LatAm also, either independently or in conjunction with third parties, makes, markets, distributes and sells beverage concentrates, fountain syrups and finished goods under various beverage brands including 7UP, Diet Pepsi,7UP, Gatorade, H2oh!, Manzanita Sol, Mirinda, Pepsi, Pepsi Black, San Carlos and Toddy. These branded products are sold to authorized and independent bottlers, independent distributors and retailers. Latin America LatAm
also, either independently or in conjunction with third parties, makes, markets, distributes and sells ready-to-drink tea products through an international joint venture with Unilever (under the Lipton brand name).
See Note 1 to our consolidated financial statements for information about the deconsolidation of our Venezuelan subsidiaries, which was effective as of the end of the third quarter of 2015.
Europe Sub-Saharan Africa
Either independently or in conjunction with third parties, ESSAEurope makes, markets, distributes and sells a number of leading snackconvenient food brands including Cheetos, Chipita, Doritos, Lay’s, Ruffles and Walkers, as well as many Quaker-branded cereals and snacks,convenient foods, through consolidated businesses, as well as through noncontrolled affiliates. ESSAEurope also, either independently or in conjunction with third parties, makes, markets, distributes and sells beverage concentrates, fountain syrups and finished goods under various beverage brands including 7UP, Diet Pepsi, Lubimyj Sad, Mirinda, Pepsi and Pepsi Max and Tropicana.Max. These branded products are sold to authorized and independent bottlers, independent distributors and retailers. In certain markets, however, ESSAEurope operates its own bottling plants and distribution facilities. ESSAEurope also, as part of its beverage business, manufactures and distributes SodaStream sparkling water makers and related products. Further, Europe makes, markets, distributes and sells a number of dairy products including Agusha, Chudo and Domik v Derevne. Europe also, either independently or in conjunction with third parties, makes, markets, distributes and sells ready-to-drink tea products through an international joint venture with Unilever (under the Lipton brand name). In addition, ESSA makes, markets, distributesthe first quarter of 2022, we sold our Tropicana, Naked and sellsother select juice brands to PAI Partners, while retaining a number of leading dairy products including Agusha, Chudo39% noncontrolling interest in TBG, operating across North America and Domik v Derevne.Europe. See Note 13 to our consolidated financial statements for further information.
Asia,Africa, Middle East and North AfricaSouth Asia
Either independently or in conjunction with third parties, AMENAAMESA makes, markets, distributes and sells a number of leading snackconvenient food brands including Cheetos, Chipsy, Crunchy, Doritos, Kurkure, Lay’s, Sasko, Spekko and Lay’s,White Star, as well as many Quaker branded cereals and snacks,Quaker-branded convenient foods, through consolidated businesses, as well as through noncontrolled affiliates. AMENAAMESA also makes, markets, distributes and sells beverage concentrates, fountain syrups and finished goods under various beverage brands including 7UP, Aquafina, Mirinda, Mountain Dew Pepsi and Tropicana.Pepsi. These branded products are sold to authorized and independent bottlers, independent distributors and retailers. In certain markets, however, AMENAAMESA operates its own bottling plants and distribution facilities. AMENAAMESA also, either independently or in conjunction with third parties, makes, markets, distributes and sells ready-to-drink tea products through an international joint venture with Unilever (under the Lipton brand name). Further, we license
Asia Pacific, Australia and New Zealand and China Region
Either independently or in conjunction with third parties, APAC makes, markets, distributes and sells a number of convenient food brands including BaiCaoWei, Cheetos, Doritos, Lay’s and Smith’s, as well as many Quaker-branded convenient foods, through consolidated businesses, as well as through noncontrolled affiliates. APAC also makes, markets, distributes and sells beverage concentrates, fountain syrups and finished goods under various beverage brands including 7UP, Aquafina, Mirinda, Mountain Dew, Pepsi and Sting. These branded products are sold to authorized and independent bottlers, independent distributors and retailers. APAC also, either independently or in conjunction with third parties, makes, markets, distributes and sells ready-to-drink tea products through an international joint venture with Unilever (under the TropicanaLipton brand for use in China on co-branded juice products in connection with a strategic alliance with Tingyi (Cayman Islands) Holding Corp. (Tingyi)name).
Our Distribution Network
Our products are primarily brought to market through direct-store-delivery (DSD),DSD, customer warehouse and distributor networks.networks and are also sold directly to consumers through e-commerce platforms and retailers. The distribution system used depends on customer needs, product characteristics and local trade practices.
Direct-Store-Delivery
We, our independent bottlers and our distributors operate DSD systems that deliver beverages foods and snacksconvenient foods directly to retail stores where the products are merchandised by our employees or our independent bottlers. DSD enables us to merchandise with maximum visibility and appeal. DSD is especially well-suited
to products that are restocked often and respond to in-store promotion and merchandising.
Customer Warehouse
Some of our products are delivered from our manufacturing plants and warehousesdistribution centers, both company and third-party operated, to customer warehouses. These less costly systems generally work best for products that are less fragile and perishable, and have lower turnover.
Distributor Networks
We distribute many of our products through third-party distributors. Third-party distributors are particularly effective when greater distribution reach can be achieved by including a wide range of products on the delivery vehicles. For example, our foodservice and vending business distributes beverages foods and snacksconvenient foods to restaurants, businesses, schools and stadiums through third-party foodservice and vending distributors and operators.
E-commerce
Our products are also available and sold directly to consumers on a growing number of company-owned and third-party e-commerce websites and mobile commerce applications as consumer consumption patterns continue to change and retail increasingly expands online.applications.
Ingredients and Other Supplies
The principal ingredients we use in our beverage food and snackconvenient food products are apple, orange and pineapple juice and other juice concentrates,acesulfame potassium, aspartame, corn, corn sweeteners, flavorings, flour, grapefruit, oranges and other fruits,juice concentrates, oats, potatoes, raw milk, rice, seasonings, sucralose, sugar, vegetable and essential oils, and wheat. We also use water in the manufacturing of our products. Our key packaging materials include plastic resins, including polyethylene terephthalate (PET) and polypropylene resins used for plastic beverage bottles and film packaging used for snackconvenient foods, aluminum, used for cans, glass, bottles, closures, cardboard and paperboard cartons. In addition, we continue to integrate recyclability into our product development process and support the increased use of recycled content, including recycled PET, in our packaging. Fuel, electricity and natural gas are also important commodities for our businesses due to their use in our and our business partners’ facilities and the vehicles delivering our products. We employ specialists to secure adequate supplies of many of these items and have not experienced any significant continuous shortages that would prevent us from meeting our requirements. Many of these ingredients, raw materials and commodities are purchased in the open market. The prices we pay for such items are subject to fluctuation, and we manage this risk through the use of fixed-price contracts and purchase orders, pricing agreements and derivative instruments, including swaps and futures. In addition, risk to our supply of certain raw materials is mitigated through purchases from multiple geographies and suppliers. When prices increase, we may or may not pass on such increases to our customers. In addition, we continue to make investments to improve the sustainability and resources of our agricultural supply chain, including the development of our initiative to advance sustainable farming practices by our suppliers and expanding it further globally. During 2023, we continued to experience increased commodity, packaging and other input costs and, in some instances, supply constraints related to the deadly conflict in Ukraine, the inflationary cost environment, adverse weather conditions, supply chain disruptions and labor shortages, which may continue into fiscal 2024. See Note 9 to our consolidated financial statements for additionalfurther information on how we manage our exposure to commodity costs.prices.
We also maintain voluntary supply chain finance agreements with several participating global financial institutions, pursuant to which our suppliers, at their sole discretion, may elect to sell their accounts receivable with PepsiCo to such global financial institutions. These agreements did not have a material impact on our business or financial results. See “Our Financial Results – Our Liquidity and Capital Resources” in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Note 14 to our consolidated financial statements for further information.
Our Brands and Intellectual Property Rights
We own numerous valuable trademarks which are essential to our worldwide businesses, including Agusha, Amp Energy, Aquafina, Aquafina Flavorsplash, Aunt Jemima,Arto Lifewtr, Baja Blast, BaiCaoWei, Bare, Bokomo, Bubly, Cap’n Crunch, Ceres, Cheetos, Chester’s, Chipsy, Chokis, Chudo, Cracker Jack, Crunchy, Diet Mist Twst, Diet Mountain Dew, Diet Mug, Diet Pepsi, Diet 7UP (outside the United States), Domik v Derevne, Doritos, Driftwell, Duyvis, Elma Chips, Emperador, Evolve, Fast Twitch, Frito-Lay, Fritos, Fruktovy Sad, G2, Gamesa, Gatorade, Gatorade Fit, Gatorade Zero, Gatorlyte, Grandma’s, H2oh!, Hard MTN Dew, Health Warrior, Imunele, Izze, J-7 Tonus,J7, Kas, KeVita, Kurkure, Lay’s, Life, Lifewtr, Lifewater, Lubimy,Liquifruit, Lubimyj Sad, Manzanita Sol, Marias Gamesa, Matutano, Mirinda, Miss Vickie’s, Mist Twst,Moirs, Mother’s, Mountain Dew, Mountain Dew Code Red, Mountain Dew Game Fuel, Mountain Dew Kickstart, Mountain Dew Zero Sugar, MTN Dew Energy, Mug, Munchies, Naked,Muscle Milk, Near East, O.N.E.,Off the Eaten Path, Paso de los Toros, Pasta Roni, Pearl Milling Company, Pepsi, Pepsi Black, Pepsi Max, Pepsi Next, Pepsi Zero Sugar, PopCorners, Pronutro, Propel, Quaker, Quaker Chewy, Quaker Simply Granola, Rice-A-Roni, Rockstar Energy, Rold Gold, Rosquinhas Mabel, Ruffles, Sabritas, Safari, Sakata, Saladitas Gamesa, San Carlos, Sandora, Santitas, Sasko, 7UP (outside the United States), 7UP Free (outside the United States), Simba, Smartfood, Smith’s, Snack a Jacks, SoBe, SoBe Lifewater,SodaStream, Sonric’s, Spekko, Stacy’s, Starry, Starry Zero Sugar, Sting, Stubborn Soda, SunChips, Toddy,
Toddynho, Tostitos, Trop 50, Tropicana, Tropicana Farmstand, Tropicana Pure Premium, Tropicana Twister, V Water, Vesely Molochnik, Walkers, Weetbix, White Star, Ya and Ya.Yachak. We also hold long-term licenses to use valuable trademarks in connection with our products in certain markets, including Dole and Ocean Spray. We also distribute Rockstar EnergyCelsius energy drinks Muscle Milk protein shakes and various DPSGKeurig Dr Pepper Inc. brands, including Dr Pepper in certain markets, Crush and Schweppes. Joint ventures in which we have an ownership interest either own or have the right to use certain trademarks, such as Lipton, Sabra and Starbucks. In addition, in the first quarter of 2022, we sold our Tropicana, Naked and other select juice brands to PAI Partners, while retaining a 39% noncontrolling interest in TBG, operating across North America and Europe. In the United States, PepsiCo acts as the exclusive distributor for TBG’s portfolio of brands for small-format and foodservice customers with chilled DSD. See Note 13 to our consolidated financial statements for further information. In 2022, we began to distribute Hard MTN Dew, an alcoholic beverage manufactured and owned by the Boston Beer Company. We have licensed the use of the Hard MTN Dew trademark to the Boston Beer Company, which has appointed us as their distributor for this product. Trademarks remain valid so long as they are used properly for identification purposes, and we emphasize correct use of our trademarks. We have authorized, through licensing arrangements, the use of many of our trademarks in such contexts as snackconvenient food joint ventures and beverage bottling appointments. In addition, we license the use of our trademarks on merchandise that is sold at retail, which enhances brand awareness.
We either own or have licenses to use a number of patents which relate to certain of our products, their packaging, the processes for their production and the design and operation of various equipment used in our businesses. Some of these patents are licensed to others.
Seasonality
Our businesses are affected by seasonal variations. For instance, our beverage sales are higher during the warmer months and certain food and dairy sales are higher in the cooler months. WeeklyOur beverage and snackconvenient food sales are generally highest in the third quarter due to seasonal and holiday-related patterns and generally lowest in the first quarter. However, taken as a whole, seasonality has not had a material impact on our consolidated financial results.
Our Customers
Our customers include wholesale and other distributors, foodservice customers, grocery stores, drug stores, convenience stores, discount/dollar stores, mass merchandisers, membership stores, hard discounters, e-commerce retailers and authorized independent bottlers, among others. We normally grant our independent bottlers exclusive contracts to sell and manufacture certain beverage products bearing our trademarks within a specific geographic area. These arrangements provide us with the right to charge our independent bottlers for concentrate, finished goods and Aquafina royalties and specify the manufacturing process required for product quality. We also grant distribution rights to our independent bottlers for certain beverage products bearing our trademarks for specified geographic areas.
We rely on and provide financial incentives to our customers to assist in the distribution and promotion of our products to the consumer. For our independent distributors and retailers, these incentives include volume-based rebates, product placement fees, promotions and displays. For our independent bottlers, these incentives are referred to as bottler funding and are negotiated annually with each bottler to support a variety of trade and consumer programs, such as consumer incentives, advertising support, new product support, and vending and cooler equipment placement. Consumer incentives include coupons, pricing discounts and promotions, and other promotional offers. Advertising support is directed at advertising programs and supporting independent bottler media. New product support includes targeted consumer and retailer incentives and direct marketplace support, such as point-of-purchase materials, product placement fees, media and advertising. Vending and cooler equipment placement programs support the acquisition and placement of vending machines and cooler equipment. The nature and type of programs vary annually.
Changes to the retail landscape, including increased consolidation of retail ownership, the rapidcontinued growth of sales through e-commerce websites and mobile commerce applications, including through subscription services and other direct-to-consumer businesses, the integration of physical and digital operations among retailers, as well as the growth ininternational expansion of hard discounters, and the current economic environment continue to increase the importance of major customers. In 2017,2023, sales to Walmart Inc. (Walmart), and its affiliates, including Sam’s Club (Sam’s), represented approximately 13%14% of our consolidated net revenue. Our top five retail customers represented approximately 33%revenue, with sales reported across all of our 2017 net revenue in North America, with Walmart (including
Sam’s) representing approximately 19%. These percentages includedivisions, including concentrate sales to our independent bottlers, which were used in finished goods sold by them to these retailers.
See “Off-Balance-Sheet Arrangements” in “Our Financial Results – Our Liquidity and Capital Resources” in Item 7. Management’s Discussion and AnalysisWalmart. The loss of Financial Condition and Results of Operations for more informationthis customer would have a material adverse effect on our independent bottlers.FLNA, QFNA and PBNA divisions.
Our Competition
Our beverage food and snackconvenient food products are in highly competitive categories and markets and compete against products of international beverage food and snackconvenient food companies that, like us, operate in multiple geographies, as well as regional, local and private label manufacturers and economy brands and other competitors.competitors, including smaller companies developing and selling micro brands directly to consumers through e-commerce platforms or through retailers focused on locally-sourced products. In many countries in which our products are sold, including the United States, The Coca-Cola Company is our primary beverage competitor. Other beverage food and snackconvenient food competitors include, but are not limited to, DPSG, KelloggCampbell Soup Company, Conagra Brands, Inc., Hormel Foods Corporation, Kellanova, Keurig Dr Pepper Inc., The Kraft Heinz Company, Link Snacks, Inc., Mondelēz International, Inc., Monster Beverage Corporation, Nestlé S.A., Red Bull GmbH and Snyder’s-Lance,Utz Brands, Inc.
Many of our convenient food and snack products hold significant leadership positions in the convenient food and snack industry in the United States and worldwide. In 2017,2023, we and The Coca-Cola Company represented approximately 23%19% and 20%, respectively, of the U.S. liquid refreshment beverage category by estimated retail sales in measured channels, according to Information Resources, Inc. However, The Coca-Cola Company has significant carbonated soft drink (CSD) share advantage in many markets outside the United States.
Our beverage food and snackconvenient food products compete primarily on the basis of brand recognition and loyalty, taste, price, value, quality, product variety, innovation, distribution, shelf space, advertising, marketing and promotional activity (including digital), packaging, convenience, service and the ability to anticipate and effectively respond to consumer preferences and trends, including increased consumer focus on health and wellness and sustainability and the continued acceleration of e-commerce and other methods of distributing and purchasing products. Success in this competitive environment is dependent on effective promotion of existing products, effective introduction of new products and reformulations of existing products, increased efficiency in production techniques, effective incorporation of technology and digital tools across all areas of our business, the effectiveness of our advertising campaigns, marketing programs, product packaging and pricing, increased efficiency in production techniques, new vending and dispensing equipment and brand and trademark development and protection. We believe that the strength of our brands, innovation and marketing, coupled with the quality of our products and flexibility of our distribution network, allows us to compete effectively.
Research and Development
We engage in a variety of research and development activities and invest in innovation globally with the goal of meeting changing consumer demandsthe needs of our customers and preferencesconsumers and accelerating sustainable growth. These activities principally involve: innovations focused on creating consumer preferred products to grow and transform our portfolio through development of new technologies, ingredients, flavors and products; reformulationsubstrates; development and improvement in the quality and appeal of existing products; improvement and modernization ofour manufacturing processes, including reductions in cost reduction;and environmental footprint; implementing product improvements in product quality, safety and integrity; development of, and improvements in, dispensing equipment, packaging technology, package design and portion sizes; efforts focused on identifying opportunities to transform, grow and broaden our productglobal portfolio including by developing products with improved nutrition profiles that reduce added sugars, sodium or saturated fat, including through the use of sweetener alternatives and flavor modifiers and innovation in existing sweeteners, and byfat; offering more products with functional ingredients and positive nutrition including legumes, whole grains, fruits and vegetables, nuts and seeds, dairy, protein (including plant-based proteins), fiber, micronutrients and hydration; development of packaging technology and new package designs, including reducing the amount of plastic in our packaging and developing recyclable, compostable, biodegradable, reusable or otherwise sustainable packaging; development of marketing, merchandising and dispensing equipment; further expanding our beyond the bottle portfolio including innovation for our SodaStream business; investments in buildingtechnology and digitalization, including artificial intelligence and data analytics to enhance our consumer insights and research; continuing to strengthen our omnichannel capabilities, to support our global e-commerce business; and improvementsparticularly in energy efficiencye-commerce; and efforts focused on reducing our impact on the environment. environment, including reducing water use in our operations and our agricultural practices and reducing our environmental impact in our operations throughout our value chain.
Our research centers are located around the world, including in Brazil, China, India, Ireland, Mexico, Russia, the United Arab Emirates,South Africa, the United Kingdom and the United States, and leverage nutritionconsumer insights, food science food
science,and engineering and consumer insights to meet our strategy to continue to develop nutritious and convenient beverages, foods and snacks.
In 2017, we continued to refine our beverage, food and snack portfolio to meet changing consumer demands by reducing added sugars in many of our beverages and sodium and saturated fat in many of our foods and snacks, and by developing a broader portfolio of product choices, including: continuing to expand our beverage options that contain no high-fructose corn syrup and that are made with natural flavors; expanding our state-of-the-art food and beverage healthy vending initiative to increase the availability of convenient, affordable and enjoyable nutrition; further expandingcontinually innovate our portfolio of nutritious products by building on our important nutrition platformsbeverages and brands — Quaker (grains), Tropicana (juices, lemonades, fruit and vegetable drinks), Gatorade (sports nutrition for athletes), Naked Juice (cold-pressed juices and smoothies) and KeVita (probiotics, tonics and fermented teas); further expanding our whole grain products globally; and further expanding our portfolio of nutritious products in growing categories, such as dairy, hummus and other refrigerated dips, and baked grain snacks. In addition, we continued to make investments to reduce our impact on the environment, including: efforts to conserve raw materials and energy, such as by working to achieve reductions in greenhouse gas emissions across our global businesses, by helping to protect and conserve global water supply especially in high-water-risk locations (including replenishing watersheds that source our operations in high-water-risk locations and promoting the efficient use of water use in our agricultural supply chain), and by incorporating into our operations, improvements in the sustainability and resources of our agricultural supply chain; efforts to reduce waste generated by our operations and disposed of in landfills; efforts to support increased packaging recovery and recycling rates; efforts to increase energy efficiency, including the increased use of renewable energy and resources; efforts to support sustainable agriculture by expanding best practices with our growers and suppliers; and efforts to optimize packaging technology and design to make our packaging increasingly recoverable or recyclable with lower environmental impact, including continuing to invest in developing compostable and biodegradable packaging.convenient foods.
Research and development costs were $737 million, $760 million and $754 million in 2017, 2016 and 2015, respectively, and are reported within selling, general and administrative expenses. Consumer research is excluded from such research and development costs and included in other marketing costs.
Regulatory Matters
The conduct of our businesses, including the production, storage, distribution, sale, display, advertising, marketing, labeling, content, quality, safety, transportation, packaging, disposal, recycling and use of our products, as well as our employment and occupational health and safety practices and protection of personal information, are subject to various laws and regulations administered by federal, state and local governmental agencies in the United States, as well as to laws and regulations administered by government entities and agencies in the more than 200 other countries and territories in which our products are made, manufactured, distributed or sold. It is our policy to abide by the laws and regulations around the world that apply to our businesses.
The U.S. laws and regulations that we are subject to include:include, but are not limited to: the Federal Food, Drug and Cosmetic Act and various state laws governing food safety;safety and food labeling; the Food Safety
Modernization Act; the Occupational Safety and Health Act;Act and various state laws and regulations governing workplace health and safety; various federal, state and local environmental protection laws, as discussed below; the Federal Motor Carrier Safety Act; the Federal Trade Commission Act; the Lanham Act;Act and various state law statutory and common law duties regarding false advertising; various federal and state laws and regulations governing competition and trade practices;practices, including the Robinson-Patman Act and the Clayton Act; various federal and state laws and regulations governing our employment practices, including those related to equal employment opportunity, such as the Equal Employment Opportunity Act and the National Labor Relations Act and those related to overtime compensation, such as the Fair Labor Standards Act; various state and federal laws pertaining to sale and distribution of alcohol beverages; data privacy and personal data protection laws and regulations, including the California Consumer Privacy Act of 2018 (as modified by the California Privacy Rights Act); customs and foreign trade laws and regulations;regulations, including laws regarding the import or export of our products or ingredients used in our products and tariffs; laws regulating the sale of certain of our products in schools; laws regulating the ingredients or substances contained in, or attributes of, our products; laws regulating our supply chain, including the 2010 California Transparency in Supply Chains Act and laws relating to the payment of taxes. We are also required to comply with the Foreign Corrupt Practices Act and the Trade Sanctions Reform and Export Enhancement Act. We are also subject to various state and local statutes and regulations, including state consumer protection laws such as Proposition 65 in California, which requires that a specific warning appear
on any product that contains a substance listed by the State of California as having been found to cause cancer or birth defects, unless the amount of such substance in the product is below a safe harbor level.
We are also subject to numerous similar and other laws and regulations outside the United States, including but not limited to laws and regulations governing food safety, international trade and tariffs, supply chains, including the U.K. Modern Slavery Act, occupational health and safety, competition, anti-corruption and data privacy.privacy, including the European Union General Data Protection Regulation. In many jurisdictions, compliance with competition laws is of special importance to us due to our competitive position in those jurisdictions, as is compliance with anti-corruption laws, including the U.K. Bribery Act. We rely on legal and operational compliance programs, as well as in-house and outside counsel and other experts, to guide our businesses in complying with the laws and regulations around the world that apply to our businesses.
In addition, certainCertain jurisdictions have either imposed, or are considering imposing, new or increased taxes on the manufacture, distribution or sale of our products, ingredients or substances contained in, or attributes of, our products or commodities used in the production of our products. These taxes vary in scope and form: some apply to all beverages, including non-caloric beverages, while others apply only to beverages with a caloric sweetener (e.g., sugar). Similarly, some measures apply a single tax rate per liquid ounceounce/liter on beverages containing over a certain level of added sugar (or other sweetener) while others apply a graduated tax rate depending upon the amount of added sugar (or other sweetener) in the beverage and some apply a flat tax rate on beverages containing a particular substance or ingredient, regardless of the level of such substance or ingredient.
In addition, certainCertain jurisdictions have either imposed, or are considering imposing, product labeling or warning requirements or other limitations on the marketing or sale of certain of our products as a result of ingredients or substances contained in such products or the audience to whom products are marketed. These types of provisions have required that we provide a label that highlightshighlight perceived concerns about a product, or warnswarn consumers to avoid consumption of certain ingredients or substances present in our products.products, restrict the age of consumers to whom products are marketed or sold, limit the location in which our products may be available or discontinue the use of certain ingredients. It is possible that similar or more restrictive requirements may be proposed or enacted in the future. Regulators may also
Certain jurisdictions have either imposed or are considering imposing regulations designed to increase recycling rates, encourage waste reduction, restrict consumers’ ability to use benefit programs, such as the Supplemental Nutrition Assistance Program in the United States, to purchase certain beverages and foods. In addition, legislation has been enacted in certain U.S. states and in certain other countries where our products are sold that requires collection and recycling of containers or that prohibits the sale of our beveragesproducts utilizing certain packaging or to carry warnings about the environmental impact of plastic packaging. These regulations vary in scope and form from deposit return systems designed to incentivize the return of beverage containers, to extended producer responsibility policies and even restrictions or bans on the use of certain non-refillable containers, unless a deposit, ecotax or other fee is charged.types of packaging, including single-use plastics and packaging containing per- and polyfluoroalkyl substances (PFAS). It is possible that similar or more restrictive requirements may be proposed or enacted in the future.
We are also subject to national and local environmental laws in the United States and in foreign countries in which we do business, including laws related to water consumption and treatment, wastewater discharge and air emissions. In the United States, our facilities must comply withwe are subject to the Clean Air Act, the Clean Water Act, the Comprehensive Environmental Response, Compensation and Liability Act, the Resource Conservation and Recovery Act and other federal, state and statelocal laws and regulations regarding handling, storage, release and disposal of wastes generated on-siteonsite and sent to third-party owned and operated off-siteoffsite licensed facilities and our facilitiesfacilities. Our operations outside the United States must comply withare subject to similar laws and regulations. In addition, continuing concern over environmental, social and governance matters, including climate change, mayis expected to continue to result in new or increased legal and regulatory requirements (in or outside of the United States) to reduce oremissions to mitigate the potential effects of greenhouse gases, or to limit or impose additional costs on commercial water use due to local water scarcity concerns.concerns or to expand mandatory reporting of certain environmental, social and governance metrics. Our policy is to abide by all applicable environmental laws and regulations, and we have internal programs in place with respect to our global environmental compliance. We have made, and plan to continue making, necessary expenditures for compliance with applicable environmental laws and regulations.regulations and to achieve our sustainability goals. While these expenditures have not had a material impact on our business, financial condition or results of operations to date, changes in environmental compliance requirements, and any expenditures necessary to comply with such requirements or to achieve our sustainability goals, could adversely affect our financial performance. In addition, we and our subsidiaries are subject to environmental remediation obligations arising in the normal course of business, as well as remediation and related indemnification obligations in connection with certain historical activities and contractual obligations, including those of businesses or properties acquired by us or our subsidiaries. While these environmental remediation and indemnification
obligations cannot be predicted with certainty, such obligations have not had, and are not expected to have, a material impact on our capital expenditures, earnings or competitive position.
In addition to the discussion in this section, see also “Item 1A. Risk Factors.”
Employees
AsHuman Capital
PepsiCo believes that human capital management, including attracting, developing and retaining a high quality workforce, is critical to our long-term success. Our Board of Directors (Board) and its Committees provide oversight on a broad range of human capital management topics, including corporate culture, diversity, equity and inclusion, pay equity, health and safety, training and development and compensation and benefits.
We employed approximately 318,000 people worldwide as of December 30, 2017, we and our consolidated subsidiaries employed approximately 263,000 people worldwide,2023, including approximately 113,000134,000 people within the United States. In certain countries, our employment levels are subject to seasonal variations. We or our subsidiaries are party to numerous collective bargaining agreements. We expect that we will be able to renegotiate these collective bargaining agreements on satisfactory terms when they expire.Weand believe that relations with our employees are generally good.
Protecting the safety, health, and well-being of our associates around the world is PepsiCo’s top priority. We strive to achieve an injury-free work environment. We also continue to invest in emerging technologies to protect our employees from injuries, including leveraging fleet telematics and distracted driving technology, resulting in reductions in road traffic incidents, and deploying ergonomic and machine safety risk reduction solutions.
We believe that our culture of diversity, equity and inclusion is a competitive advantage that fuels innovation, enhances our ability to attract and retain talent and strengthens our reputation. We continually strive to improve the attraction, retention, and advancement of diverse associates to ensure we sustain a high-caliber pipeline of talent that also represents the communities we serve. As of December 30, 2023, our global workforce was approximately 27% female, while management roles were approximately 45% female. As of December 30, 2023, approximately 49% of our U.S. workforce was comprised of racially/ethnically diverse individuals, of which approximately 34% of our U.S. associates in managerial roles were racially/ethnically diverse individuals. The Board has overseen appointments of current direct reports of our Chief Executive Officer, who include 7 executives globally who are racially/ethnically diverse and/or female.
We are also committed to the continued growth and development of our associates. PepsiCo supports and develops its associates through a variety of global training and development programs that build and strengthen employees’ leadership and professional skills, including career development plans, mentoring programs and in-house learning opportunities, such as PEP U Degreed, our internal global online learning resource. In 2023, PepsiCo employees completed over 1.5 million hours of training.
Available Information
We are required to file annual, quarterly and current reports, proxy statements and other information with the U.S. Securities and Exchange Commission (SEC). The public may read and copy any materials that we file with the SEC at the SEC’s Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549. Information on the operation of the Public Reference Room may be obtained by calling the SEC at 1-800-SEC-0330. In addition, the SEC maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC at http://www.sec.gov.
Our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, proxy statements and amendments to those documents filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (Exchange Act), are also available free of charge on our Internet site at http://www.pepsico.com as soon as reasonably practicable after such reports are electronically filed with or furnished to the SEC.
Investors should note that we currently announce material information to our investors and others using filings with the SEC, press releases, public conference calls, webcasts or our corporate website (www.pepsico.com), including news and announcements regarding our financial performance, key personnel, our brands and our business strategy. Information that we post on our corporate website could be deemed material to investors. We encourage investors, the media, our customers, consumers, business partners and others interested in us to review the information we post on these channels. We may from time to time update the list of channels we will use to communicate information that could be deemed material and will post information about any such change on www.pepsico.com. The information on our website is not, and shall not be deemed to be, a part hereof or incorporated into this or any of our other filings with the SEC.
Item 1A. Risk Factors.
You should carefully considerThe following risks, some of which have occurred and any of which may occur in the risks described below in addition to the other information set forth in this Annual Report on Form 10-K. Any of the factors described below could occur or continue to occur and couldfuture, can have a material adverse effect on our business or financial condition, results of operations orperformance, which in turn can affect the price of our publicly traded securities. The risks belowThese are not the only risks we face. AdditionalThere may be other risks and uncertaintieswe are not currently known to us,aware of or that we currently deem not to be immaterial,material but that may occur or become material in the futurefuture.
Business Risks
Risks associated with the deadly conflict in Ukraine
The deadly conflict in Ukraine and may also adverselyrelated sanctions have continued to result in worldwide geopolitical and macroeconomic uncertainty. The conflict has resulted and could continue to result in volatile commodity markets, supply chain disruptions, increased risk of cyber incidents or other disruptions to our
information systems, reputational risk, heightened risks to employee safety, business disruptions (including labor shortages), significant volatility of the Russian ruble, limitations on access to credit markets and other corporate banking services, including working capital facilities, reduced availability and increased costs for transportation, energy, packaging and raw materials and other input costs, environmental, health and safety risks related to securing and maintaining facilities, additional sanctions, export controls and other legislation or regulations (including restrictions on the transfer of funds to and from Russia). The ongoing conflict could result in the temporary or permanent loss of assets, including the nationalization or expropriation of assets, result in additional impairment charges or significantly affect our ability to manage our operations in these markets which could result in the deconsolidation of such businesses. We cannot predict how and the extent to which the conflict will continue to affect our employees, operations, customers, consumers or business reputation, financial condition, results of operationspartners or the priceour ability to achieve certain of our publicly traded securities. Therefore, historical operating results, financial and business performance, events and trends may not be a reliable indicator of future operating results, financial and business performance, events or trends.
Demand for our products may besustainability goals. The conflict has adversely affected by changes in consumer preferences or any inability on our partand could continue to innovate, market or distribute our products effectively, and any significant reduction in demand could adversely affect our business, financial condition or results of operations.
We are a global food and beverage company operating in highly competitive categories and markets. To generate revenues and profits, we rely on continued demand for our products and therefore must understand our customers and consumers and sell products that appeal to themglobal business.
Reduction in the sales channel in which they prefer to shop or browse for such products. In general, changes in consumption in our product categories or consumer demographics could result in reducedfuture demand for our products. products would adversely affect our business.
Demand for our products depends in part on our ability to innovate and anticipate and effectively respond to shifts in consumer trends and preferences, including increased demandthe types of products our consumers want and how they browse for, products that meet the needs of consumers who are concerned with: healthpurchase and wellness (including products that have less added sugars, sodium and saturated fat); convenience (including responding to changes in in-home and on-the-go consumption patterns and methods of distribution of our products to customers and consumers); or the location of origin or source of the ingredients and products (including the environmental impact related to the production of our products).
consume them. Consumer preferences have been evolving, and are expected to continue tocontinuously evolve due to a variety of factors, including: changes in consumer demographics, includingconsumption patterns, diet (whether due to changes in consumer behavior and eating habits, the aginguse of weight-loss drugs or other factors) and channel preferences (including continued increases in the general populatione-commerce and the emergence of the millennialonline-to-offline channels); pricing; product quality; concerns or perceptions regarding packaging and younger generations who have differing spendingits environmental impact (such as single-use and consumption habits; consumerother plastic packaging); and concerns or perceptions regarding the nutrition profile and health effects of, or location of origin of, ingredients or substances in our products or packaging, including due to the results of third-party studies (whether or not scientifically valid). Concerns with any of the foregoing could lead consumers to reduce or publicly boycott the purchase or consumption of our products. Pandemics, epidemics or other disease outbreaks, such as COVID-19, and geopolitical events, wars and other military conflicts have also impacted and could continue to impact consumer preferences and demand for our products. Consumer preferences are also influenced by perception of our brand image or the brand images of our products, the success of our advertising and marketing campaigns, our ability to engage with our consumers in the manner they prefer, including through the use of digital media or assets, and the perception of our use of social media and our response to political and social issues, geopolitical events, wars and other military conflicts or catastrophic events. These and other factors have reduced and could continue to reduce consumers’ willingness to purchase certain of our products, including the presenceas a result of added sugar, sodium and saturated fat in certain of our products; growing demand for organic or locally sourced ingredients, or consumer concerns or perceptions (whether or not valid) regarding the health effects of ingredients or substances present in certain of our products, such as 4-MeI, acrylamide, artificial flavors and colors, artificial sweeteners, aspartame, caffeine, furfuryl alcohol, high-fructose corn syrup, partially hydrolyzed oils, saturated fat, sodium, sugar, trans fats or other product ingredients, substances or attributes, including genetically engineered ingredients; taxes or other restrictions, including labeling requirements, imposed on our products; consumer concerns or perceptions regarding packaging materials, including their environmental impact; changes in package or portion size; changes in social trends that impact travel, vacation or leisure activity patterns; changes in weather patterns or seasonal consumption cycles; the continued acceleration of e-commerce and other methods of purchasing products; negative publicity (whether or not valid) resulting from regulatory actions, litigation against us or other companies in our industry or negative or inaccurate posts or comments in the media, including social media, about us, our employees, our products or advertising campaigns and marketing programs; perception of social media posts or other information disseminated by us or our employees and agents, customers, suppliers, bottlers, distributors, joint venture partners or other third parties; perception of our employees, agents, customers, suppliers, bottlers, distributors, joint venture partners or other third parties or the business practices of such parties; product boycotts; or a downturn in economic conditions.public boycotts. Any of these factors may reduce consumers’ willingness to purchase our products and any inability on our part to anticipate or react to such changes could result in reduced demand for our products and erosion of our competitive and financial position and could adversely affect our business, reputation, financial condition or results of operations.
Demand for our products is also dependent in part on product quality, product and marketing innovation and production and distribution, including our ability to: maintain a robust pipeline of new products; improve the quality of existing products; extend our portfolio of products in growing markets and categories; respond to cultural differences and regional consumer preferences (whether through developing or acquiring new products that are responsive to such preferences); monitor and adjust our use of ingredients (including to respond to applicable regulations); develop or acquire a broader portfolio of product choices, including by continuing to increase non-carbonated beverage offerings and other alternatives to traditional carbonated beverage offerings and, in some cases, reformulations of our traditional carbonated beverage offerings; develop sweetener alternatives and innovation; improve the production, packaging and distribution of our
products; respond to competitive product and pricing pressures and changes in distribution channels, including in the rapidly growing e-commerce channel; and implement effective advertising campaigns and marketing programs, including successfully adapting to a rapidly changing media environment through the use of social media and online advertising campaigns and marketing programs.
Although we devote significant resources to the items mentioned above, there can be no assurance as to our continued ability to develop, launch, maintain or distribute successful new products or variants of existing products in a timely manner (including to correctly anticipate or effectively react to changes in consumer preferences)preferences and trends, or to develop and effectively execute advertising and marketing campaigns that appeal to customers and consumers. Our failure to make the right strategic investments to drive innovation or successfully launch new products or variants of existing products or effectively distributedo so, including investments in data analytics to understand consumer trends, can lead to reduced demand for our products, lead to inventory write-offs or erode our competitive and financial position, thereby adversely affecting our business. In addition, our business operations, including our supply chain, are subject to disruption by geopolitical events, wars and other military conflicts, natural disasters, pandemics, epidemics or other events beyond our control that could negatively impact product availability and decrease demand for our existing products by negatively affecting consumer perception ofif our existing brands and may result in inventory write-offs and other costs that couldcrisis management plans do not effectively mitigate these issues.
Damage to our reputation or brand image can adversely affect our business.
Maintaining a positive reputation globally is critical to selling our products. Our reputation or brand image has in the past been, and could in the future be, adversely impacted by a variety of factors, including: any failure by us, our business financial conditionpartners, or resultsother actors in the supply chain to maintain high ethical, business and environmental, social and governance practices, including with respect to human rights, child labor, diversity, equity and inclusion, workplace conditions and employee health and safety; any failure, or
Changesperception of a failure, to achieve our environmental, social and governance goals, or any negative perception toward such goals, including with respect to the nutrition profile of our products, diversity, equity and inclusion initiatives, packaging, water use and our impact on the environment; any failure to address health or other concerns about our products, products we distribute (including alcoholic beverages), or particular ingredients in our products, including concerns regarding whether certain of our products contribute to obesity and other health conditions or an increase in public health costs; our research and development efforts; any product quality or safety issues, including the recall of any of our products; any failure to comply with laws and regulations applicableregulations; consumer perception of our advertising campaigns, sponsorship arrangements, marketing programs, use of social media and our response to political and social issues, geopolitical events, wars and other military conflicts or catastrophic events; or any failure to effectively respond to negative or inaccurate comments about us on social media or otherwise regarding any of the foregoing. Damage to our reputation or brand image has in the past and could in the future decrease demand for our products, thereby adversely affecting our business.
Product recalls or other issues or concerns with respect to product quality and safety can adversely affect our business operationsbusiness.
We have recalled, and could in the future recall, products due to product quality or safety issues, including actual or alleged mislabeling, misbranding, spoilage, undeclared allergens, adulteration or contamination. Joint ventures in which we have an interest have also recalled, and could in the future recall, products for the same or other reasons. Product recalls, including the voluntary recall of certain bars and cereals in our QFNA division (Quaker Recall), have in the past and could in the future adversely affect our business financial conditionby resulting in losses due to their cost, the destruction of product inventory, customer fines and returns or resultslost sales due to any unavailability of operations.
The conductthe product for a period of our business is subject to various laws and regulations administered by federal, state and local governmental agenciestime. In addition, product quality or safety issues have in the United States, as well as government entitiespast and agencies outsidecould in the United States, including lawsfuture also reduce consumer confidence and regulations relating to the production, storage, distribution, sale, display, advertising, marketing, labeling, content, quality, safety, transportation, disposal, recycling and use ofdemand for our products, as well as our employmentcause production and occupational health and safety practices and protection of personal information. In addition, in many jurisdictions, compliance with competition laws is of special importance to us due to our competitive position in those jurisdictions, as is compliance with anti-corruption laws. Many of these laws and regulations have differing or conflicting legal standards across the various markets where our products are made, manufactured, distributed or sold and, in certain markets, such as developing and emerging markets, may be less developed or certain. For example, products containing genetically engineered ingredients are subject to varying regulations and restrictions in the jurisdictions in which our products are made, manufactured, distributed or sold. In addition, these laws and regulations and related interpretations may change, sometimes dramatically and unexpectedly,delivery disruptions, including as a result of a varietytemporary or permanent closure of factors, including political, economicmanufacturing plants or social events. Such changes may include changes in: foodfacilities, and drug laws; laws relatedresult in increased costs (including payment of fines and/or judgments, cleaning and remediation costs and legal fees, and costs associated with alternative sources of production) and damage our reputation (or the reputation of joint ventures in which we have an interest), particularly as we or our joint ventures continue to product labeling, advertising and marketing practices; laws and treaties related to international trade, including laws regarding the importexpand into new categories, all of which can adversely affect our business. Any perception or export of our products or ingredients used in our products and tariffs; laws and programs restricting the sale and advertising of certain of our products, including restrictions on the audience to whom products are marketed; laws and programs aimed at reducing, restricting or eliminating ingredients or substances in, or attributes of, certain of our products; laws and programs aimed at discouraging the consumption or altering the package or portion size of certain of our products, including laws imposing restrictions on the use of government funds or programs, such as the Supplemental Nutrition Assistance Program (included within the Farm Bill in the United States), to purchase certain of our products; increased regulatory scrutiny of, and increased litigation involving product claims and concernsallegation (whether or not valid) regarding the effects on health of ingredientsfailure to maintain adequate oversight over product quality or substancessafety can result in product recalls, litigation, government investigations or attributesinquiries or civil or criminal proceedings, all of certain of our products, including without limitation those found in energy drinks; state consumer protection laws; laws regulating the protection of personal information; cyber-security regulations; regulatory initiatives, including the imposition or proposed imposition of new or increased taxes or other measures impacting the manufacture, distribution or sale of our products; accounting rules and interpretations; employment laws; privacy laws; laws regulating the price we may charge for our products; laws regulating water rights and access to and use of water or utilities; environmental laws, including laws relating to the regulation of water treatment and discharge of wastewater and air emissions and laws relating to the disposal, recovery or recycling of our products and their packaging. Changes in regulatory requirements, and competing regulations and standards, where our
products are made, manufactured, distributed or sold,which may result in higher compliancefines, penalties, damages or criminal liability. Our business can also be adversely affected if consumers lose confidence in product quality, safety and integrity generally, even if such loss of confidence is unrelated to products in our portfolio. In addition, while we currently maintain insurance coverage that, subject to its terms and conditions, is intended to address costs capital expendituresassociated with certain aspects of product recalls, this insurance coverage may not, depending on the specific facts and higher production costs, which couldcircumstances surrounding an incident, cover all losses or all types of claims that arise from an incident, or the damage to our reputation or brands that may result from an incident.
Any inability to compete effectively can adversely affect our business, reputation, financial condition or results of operations.
The imposition by any jurisdiction in the United States or outside the United States of new laws, regulations or governmental policy and their related interpretations, or changes in any of the foregoing, including taxes, labeling, product or production requirements or other limitations on, or pertaining to, the sale or advertisement of certain of our products, ingredients or substances contained in, or attributes of, our products or commodities used in the production of our products, may further alter the way in which we do business and, therefore, may continue to increase our costs or liabilities or reduce demand for our products, which could adversely affect our business, financial condition or results of operations. If one jurisdiction imposes or proposes to impose new requirements or restrictions, other jurisdictions may follow and the requirements or restrictions, or proposed requirements or restrictions, may also result in adverse publicity (whether or not valid). For example, if one jurisdiction imposes a tax on sugar-sweetened beverages or foods, or imposes a specific labeling or warning requirement, other jurisdictions may impose similar or other measures that impact the manufacture, distribution or sale of our products. The foregoing may result in decreased demand for our products, adverse publicity or increased concerns about the health implications of consumption of ingredients or substances in our products (whether or not valid).
In addition, studies (whether or not scientifically valid) are underway by third parties purporting to assess the health implications of consumption of certain ingredients or substances present in certain of our products, such as 4-MeI, acrylamide, caffeine, furfuryl alcohol, added sugars, sodium and saturated fat. Third parties have also published documents or studies claiming (whether or not valid) that taxes can address consumer consumption of sugar-sweetened beverages and other foods high in sugar, sodium or saturated fat. If, as a result of these studies and documents or otherwise, there is an increase in consumer concerns (whether or not valid) about the health implications of consumption of our products, an increase in the number of jurisdictions that impose taxes on our products, or an increase in new labeling, product or production requirements or other restrictions on the manufacturing, sale or display of our products, demand for our products could decline, or we could be subject to lawsuits or new regulations that could affect sales of our products, any of which could adversely affect our business, financial condition or results of operations.
Although we have policies and procedures in place that are designed to promote legal and regulatory compliance, our employees, suppliers, or other third parties with whom we do business could take actions, intentional or not, that violate these policies and procedures or applicable laws or regulations or could fail to maintain required documentation sufficient to evidence our compliance with applicable laws or regulations. Violations of laws or regulations could subject us to criminal or civil enforcement actions, including fines, penalties, disgorgement of profits or activity restrictions, any of which could result in adverse publicity or affect our business, financial condition or results of operations. In addition, regulatory authorities under whose laws we operate may have enforcement powers that can subject us to actions such as product recall, seizure of products or assets or other sanctions, which could have an adverse effect on the sales of products in our portfolio or could lead to damage to our reputation.
In addition, we and our subsidiaries are party to a variety of legal and environmental remediation obligations arising in the normal course of business, as well as environmental remediation, product liability, toxic tort and related indemnification proceedings in connection with certain historical activities and contractual obligations, including those of businesses acquired by us or our subsidiaries. Due to regulatory complexities, uncertainties inherent in litigation and the risk of unidentified contaminants on current and former properties of ours and our subsidiaries, the potential exists for remediation, liability and indemnification costs to differ materially from the costs we have estimated. We cannot guarantee that our costs in relation to these matters
will not exceed our estimates or otherwise have an adverse effect on our business, financial condition or results of operations.
The imposition or proposed imposition of new or increased taxes aimed at our products could adversely affect our business, financial condition or results of operations.
Certain jurisdictions in which our products are made, manufactured, distributed or sold have either imposed, or are considering imposing, new or increased taxes on the manufacture, distribution or sale of our products, ingredients or substances contained in, or attributes of, our products or commodities used in the production of our products. These taxes vary in scope and form: some apply to all beverages, including non-caloric beverages, while others apply only to beverages with a caloric sweetener (e.g., sugar). Similarly, some measures apply a single tax rate per liquid ounce while others apply a graduated tax rate depending upon the amount of added sugar in the beverage and some apply a flat tax rate on beverages containing a particular substance or ingredient. For example, effective January 2018, the City of Seattle, Washington in the United States enacted a per-ounce surcharge on all sugar-sweetened beverages. By contrast, the United Kingdom enacted a graduated tax, effective April 2018, in which the per-ounce tax rate is tied to the amount of added sugar present in the beverage: the higher the amount of added sugar, the higher the per-ounce tax rate and Saudi Arabia enacted, effective June 2017, a flat tax rate of 50% on the retail price of carbonated soft drinks. These tax measures, whatever their scope or form, could increase the cost of our products, reduce overall consumption of our products, lead to negative publicity (whether based on scientific fact or not) or leave consumers with the perception (whether or not valid) that our products do not meet their health and wellness needs. Such factors could adversely affect our business, financial condition or results of operations.
Significant additional labeling or warning requirements or limitations on the marketing or sale of our products may reduce demand for such products and could adversely affect our business, financial condition or results of operations.
Certain jurisdictions in which our products are made, manufactured, distributed or sold have either imposed, or are considering imposing, product labeling or warning requirements or limitations on the marketing or sale of certain of our products as a result of ingredients or substances contained in such products. These types of provisions have required that we provide a label that highlights perceived concerns about a product or warns consumers to avoid consumption of certain ingredients or substances present in our products. For example, in California in the United States, Proposition 65 requires a specific warning on or relating to any product that contains a substance listed by the State of California as having been found to cause cancer or birth defects or other reproductive harm, unless the level of such substance in the product is below a safe harbor level established by the State of California.
In addition, a number of jurisdictions, both in and outside the United States, have imposed or are considering imposing labeling requirements, including color-coded labeling of certain food and beverage products where colors such as red, yellow and green are used to indicate various levels of a particular ingredient, such as sugar, sodium or saturated fat. The imposition or proposed imposition of additional product labeling or warning requirements could reduce overall consumption of our products, lead to negative publicity (whether based on scientific fact or not) or leave consumers with the perception (whether or not valid) that our products do not meet their health and wellness needs. Such factors could adversely affect our business, financial condition or results of operations.
Changes in laws and regulations relating to packaging or disposal of our products could continue to increase our costs and reduce demand for our products or otherwise have an adverse impact on our business, reputation, financial condition or results of operations.
Certain of our products are sold in packaging designed to be recoverable for recycling but not all packaging
is recovered, whether due to low value, lack of infrastructure or otherwise. The United States and many other jurisdictions have imposed or are considering imposing regulations or policies designed to encourage recycling, including requiring that deposits or certain taxes or fees be charged in connection with the sale, distribution, marketing and use of certain packaging; extended producer responsibility policies which makes brand owners responsible for the costs of recycling products after consumers have used them; and adopting or extending product stewardship policies which could require brand owners to plan for and, if necessary, pay for the recycling or disposal of packaging after consumers have used them. In addition, these jurisdictions may elect to impose regulations or policies to ban the use of certain packaging, such as plastic beverage bottles. Compliance with these laws and regulations could continue to affect our costs or require changes in our distribution model, which could adversely affect our business, financial condition or results of operations. Further, our reputation could be damaged if we or others in our industry do not act, or are perceived not to act, responsibly with respect to packaging or disposal of our products.business.
Our business, financial condition or results of operations could suffer if we are unable to compete effectively.
Our beverage, food and snack products are in highly competitive categories and markets and compete against products of international beverage food and snackconvenient food companies that, like us, operate in multiple geographies, as well as regional, local and private label manufacturers,and economy brandsbrand manufacturers and other competitors.competitors, including smaller companies developing and selling micro brands directly to consumers through e-commerce platforms or through retailers focused on locally sourced products. In many countries in which our products are sold, including the United States, The Coca-Cola Company is our primary beverage competitor. Other beverage, food and snack competitors include, but are not limited to, DPSG, Kellogg Company, The Kraft Heinz Company, Mondelēz International, Inc., Monster Beverage Corporation, Nestlé S.A., Red Bull GmbH and Snyder’s-Lance, Inc.
Our beverage, food and snack products compete primarily on the basis of brand recognition and loyalty, taste, price, value, quality, product variety, innovation, distribution, shelf space, advertising, marketing and promotional activity, packaging, convenience, service and the ability to
anticipate and effectively respond to consumer preferences and trends, including increased consumer focus on health and wellness and the continued acceleration of e-commerce and other methods of distributing and purchasing products. Iftrends. Our business can be adversely affected if we are unable to effectively promote or develop our existing products or introduce and effectively market new products, if we are unable to effectively adopt new technologies, including artificial intelligence and data analytics to develop new commercial insights and improve operating efficiencies, if we are unable to continuously strengthen and evolve our advertisingcapabilities in digital marketing, if our competitors spend more aggressively or marketing campaigns are not effectiveeffectively than we do or if we are otherwise unable to effectively respond to supply disruptions, pricing pressure (including as a result of commodity inflation) or otherwise compete effectively, (including in distributing our products effectively and cost efficiently through all existing and emerging channels of trade, including through e-commerce and hard discounters), we may be unable to grow or maintain sales or category share or we may need to increase capital, marketing or other expenditures,expenditures.
Failure to attract, develop and maintain a highly skilled and diverse workforce or effectively manage changes in our workforce can have an adverse effect on our business.
Our business requires that we attract, develop and maintain a highly skilled and diverse workforce. Our employees are highly sought after by our competitors and other companies and our continued ability to compete effectively depends on our ability to attract, retain, develop and motivate highly skilled personnel for all areas of our organization. Our ability to do so has been and may continue to be impacted by challenges in the labor market, which has experienced and may continue to experience wage inflation, labor shortages, increased employee turnover, changes in availability of our workforce and changing worker expectations regarding flexible work models. Any unplanned turnover, sustained labor shortage or unsuccessful implementation of our succession plans to backfill current leadership positions, including the Chief Executive Officer, or failure to attract, develop and maintain a highly skilled and diverse workforce, including with key capabilities such as e-commerce and digital marketing and data analytic skills, can deplete our institutional knowledge base, erode our competitive advantage or result in increased costs due to increased competition for employees, higher employee turnover or increased employee benefit costs. In addition, failure to attract, retain and develop associates from underrepresented communities can damage our business results and our reputation. Any of the foregoing can adversely affect our business.
Water scarcity can adversely affect our business.
We and our business financial conditionpartners use water in the manufacturing of our products. Water is also essential to the production of the raw materials needed in our manufacturing process. Lack of available water of acceptable quality, actions by governmental and non-governmental organizations, investors, customers and consumers on water scarcity and increasing pressure to conserve and replenish water in areas of scarcity and stress, including due to the effects of climate change, can lead to: supply chain disruption; adverse effects on our operations or resultsthe operations of operations.our business partners; higher compliance costs; increased capital expenditures (including investments in the development of technologies to enhance water efficiency and reduce consumption); higher production costs, including less favorable pricing for water; the interruption or cessation of operations at, or relocation of, our facilities or the facilities of our business partners; failure to achieve our goals relating to water use; perception of our failure to act responsibly with respect to water use or to effectively respond to legal or regulatory requirements concerning water scarcity; or damage to our reputation, any of which can adversely affect our business.
Changes in the retail landscape or in sales to any key customer can adversely affect our business.
The retail landscape continues to evolve, including continued growth in e-commerce channels and hard discounters. Our business financial condition or results of operations couldwill be adversely affected if we are unable to maintain and develop successful relationships with e-commerce retailers and hard discounters, while also maintaining relationships with our key customers operating in traditional retail channels (many of whom are also focused on increasing their e-commerce sales). Our business can be adversely affected if e-commerce channels and hard discounters take significant additional market share away from traditional retailers or we fail to find ways to create increasingly better digital tools and capabilities for our retail customers to enable them to grow
their businesses. In addition, our business can be adversely affected if we are unable to profitably expand our own direct-to-consumer e-commerce capabilities.
The retail industry is also impacted by the actions and increasing power of retailers, including as a result of increased consolidation of ownership resulting in large retailers or buying groups with increased purchasing power, particularly in North America, Europe and Latin America. In this changing retail landscape, retailers and buying groups have impacted and may continue to impact our ability to compete in these jurisdictions by demanding lower prices or increased promotional programs, removing our products or otherwise reducing shelf space allocated to our products. The increasing power of retailers and consolidation also adversely impacts our smaller customers’ ability to compete effectively, resulting in an inability on their part to pay for our products or reduced or canceled orders of our products. Further, we must maintain mutually beneficial relationships with our key customers, including Walmart, to compete effectively. Our inability to resolve a significant dispute with any of our key customers, a change in the business condition (financial or otherwise) of any of our key customers, even if unrelated to us, a significant reduction in sales to any key customer, or the loss of any of our key customers has adversely affected and can continue to adversely affect our business.
Disruption of our manufacturing operations or supply chain, including continued increased commodity, packaging, transportation, labor and other input costs, can adversely affect our business.
We have experienced and could continue to experience disruption in our manufacturing operations and supply chain. Many of the raw materials and supplies used in the production of our products are sourced from countries experiencing war and other military conflict, acts of terrorism, civil unrest, political instability or unfavorable economic conditions. Natural disasters and extreme weather conditions also pose physical risks to our facilities, which could impair our production capabilities and disrupt our supply chain. Some raw materials and supplies, including packaging materials, are available only from a limited number of suppliers or from a sole supplier or are in short supply when seasonal demand is at its peak. There can be no assurance that we will be able to maintain favorable arrangements and relationships with suppliers or that our contingency plans will be effective to mitigate disruptions that may arise from shortages or discontinuation of any raw materials and other supplies that we use in the manufacture, production and distribution of our products or from operational or financial instability of our key suppliers. Any sustained or significant disruption in the future to the manufacturing or sourcing of products or materials could increase our costs and interrupt product supply, which can adversely impact our business.
The raw materials and other supplies, including agricultural commodities, fuel and packaging materials, such as recycled PET, transportation, labor and other supply chain inputs that we use for the manufacturing, production and distribution of our products are subject to price volatility and fluctuations in availability caused by many factors, including changes in supply and demand, supplier capacity constraints, inflation, weather conditions (including potential effects of climate change), fire, natural disasters, disease or pests (including the impact of greening disease on the citrus industry), agricultural uncertainty, health epidemics or pandemics or other contagious outbreaks (including COVID-19), labor shortages or changes in availability of our or our business partners’ workforce (including the lack of availability of truck drivers as a result of COVID-19), strikes or work stoppages (including by railway workers or other third parties involved in the manufacture, production and distribution of our products), governmental incentives and controls (including import/export restrictions, such as new or increased tariffs, sanctions, quotas or trade barriers), port congestions or delays, transport capacity constraints, cybersecurity incidents or other disruptions, loss or impairment of key manufacturing sites, political uncertainties, geopolitical events, wars and other military conflicts, acts of terrorism, governmental instability or currency exchange rates. Many of our raw materials and supplies are purchased in the open market and the prices we pay for such items are subject to fluctuation. We continued to experience
increased commodity, packaging and transportation costs during 2023, which may continue. When input prices increase unexpectedly or significantly, we may be unwilling or unable to increase our product prices or unable to effectively hedge against price increases to offset these increased costs without suffering reduced volume, revenue, margins and operating results.
Political, social and geopolitical conditions can adversely affect our business.
Political, social and geopolitical conditions in the markets in which our products are made, manufactured, distributed or sold.
Political conditions in the markets in which our products are made, manufactured, distributed or sold mayhave been and could continue to be difficult to predict, and may adversely affectresulting in adverse effects on our business, financial condition and results of operations.business. The results of elections, referendums or other political conditions (including government shutdowns), geopolitical events, wars and other military conflicts (such as the ongoing conflicts in Ukraine and the Middle East) in these markets have in the markets in which our products are made, manufactured, distributed or soldpast and could create uncertainty regardingcontinue to impact how existing laws, regulations and government programs or policies are implemented or result in uncertainty as to how such laws, regulations, programs or policies may change, including with respect to tariffs, sanctions, environmental and climate change regulation,regulations, taxes, benefit programs, the movement of goods, services and people between countries, relationships between countries, customer or consumer perception of a particular country or its government and other matters, and has resulted in and could continue to result in exchange rate fluctuation, volatility in global stock markets and global economic uncertainty. For example, there is continued uncertainty surroundingor adversely affect demand for our products, any of which can adversely affect our business. In addition, political and social conditions in certain cities throughout the United Kingdom’s pending withdrawal from the European Union,States as well as globally have resulted in demonstrations and protests, including how the United Kingdom will interactin connection with other European Union countries following its departure. Any changes in,political elections, civil rights and liberties and geopolitical events. Our operations or the impositionoperations of new laws, regulationsour business partners, including the distribution of our products and the ingredients or governmental policy and their related interpretationsother raw materials used in the production of our products, may be disrupted if such events persist for a prolonged period of time, including due to elections,
referendums or other political conditions could have an adverse impact onactions taken by governmental authorities in affected cities and regions, which can adversely affect our business, financial conditions and results of operations.business.
Our business financial condition or results of operations couldcan be adversely affected if we are unable to grow our business in developing and emerging markets.
Our success depends in part on our ability to grow our business in developing and emerging markets, including Brazil, China, Mexico, Russia the Middle East, Brazil, China and India. However, thereSouth Africa. There can be no assurance that our existing products variants of our existing products or new products that we make, manufacture, distribute or sell will be accepted or be successful in any particular developing or emerging market, due to local or global competition, product price, cultural differences, consumer preferences, regulation, method of distribution or otherwise. The following factors could reduce demand for our products or otherwise impede the growth of ourOur business in developingthese markets has been and emerging markets: unstablecould continue in the future to be impacted by economic, political orand social conditions; geopolitical conflicts, acts of war, terrorist acts, and civil unrest; increasedunrest, including demonstrations and protests; competition; volatility in the economic growth of certain of these markets and the related impact on developed countries who export to these markets; volatile oil prices and the impact on the local economy in certain of these markets; our inability to acquire businesses, form strategic business alliances or to make necessary infrastructure investments; our inability to complete divestitures or refranchisings; imposition of new or increased labeling, product or production requirements, or other restrictions; imposition of new or increasedtariffs, sanctions against, or other regulations restricting contact with certain countries in these markets, or imposition of new or increased sanctions against U.S. multinational corporations operating in these markets; actions, such as removing our products from shelves, taken by retailers in response to U.S. trade sanctions or other governmental action or policy; foreign ownership restrictions; nationalization of our assets or the assets of our suppliers, bottlers, distributors, joint venture partners or other third parties; imposition of taxes on our products or the ingredients or substances used in our products;business partners; government-mandated closure, or threatened closure, of our operations or the operations of our suppliers, bottlers, distributors, joint venture partners, customers or other third parties;business partners; restrictions on the import or export of our products or ingredients or substances used in our products; regulations relating to the repatriation of funds currently held in foreign jurisdictions to the United States; highly-inflationary economies,highly inflationary economies; devaluation or fluctuation such as the devaluation of the Egyptian pound, Turkish lira, Pound sterling, Argentine peso and the Mexican peso, or demonetization of currency; regulations on the transfer of funds to and from foreign countries, currency controls or other currency exchange restrictions, which result in significant cash balances in foreign countries, from time to time, or couldcan significantly affect our ability to effectively manage our operations in certain of these markets and couldcan result in the deconsolidation of such businesses; the lack of well-established or reliable legal systems; increased costs of doing business due to compliance with complex foreign and U.S. laws and regulations that apply to our international operations, including the Foreign Corrupt Practices Act, the U.K. Bribery Act and the Trade Sanctions Reform and Export Enhancement Act; and adverse consequences, such as the assessment of fines or penalties, for any failure to comply with these laws and regulations. IfOur business can be adversely affected if we are unable to expand our businessesbusiness in developing and emerging markets, effectively operate, or manage the risks associated with operating, in these markets, or achieve the return on capital we expect from our investments in these markets, our reputation, business, financial condition or resultsmarkets.
Uncertain or unfavorableChanges in economic conditions may have an adversecan adversely impact on our business, financial condition or results of operations.business.
Many of the countriesjurisdictions in which our products are made, manufactured, distributed and sold have experienced and may, from time to time,could continue to experience uncertain or unfavorable economic conditions, such as recessions or economic slowdowns. Our business or financial results may be adversely impacted by uncertain or unfavorable economic conditions in the United Stateshigh inflation and globally, including: adverse changes in interest rates, tax laws or tax rates;rates, including as a result of geopolitical events. These uncertain or unfavorable economic conditions have resulted in and could continue to result in recessions or economic slowdowns; volatile commodity markets, including speculative influences; highly-inflationary
markets; labor shortages; highly inflationary economies, devaluation, fluctuation or demonetization;demonetization of currency; contraction in the availability of credit in the marketplace due to legislation or economic conditions; the effects of government initiatives, including demonetization,credit; austerity or stimulus measures to manage economic conditions and any changes to or cessation of such initiatives;measures; the effects of any default by or deterioration in the creditworthiness of the countries in which our products are made, manufactured, distributed or sold or of countries that may then impact countries in which our products are made, manufactured, distributed or sold; reduced demand for our products resulting from volatility in general global economic conditions or a shift in consumer preferences for economic reasons or otherwise to regional, local or private label products or other lower-cost products, or to less profitable sales channels; or a decrease in the fair value of pension or post-retirement assets that could increase future employee benefit costs and/or funding requirements of our pension or post-retirement plans. In addition, we cannot predict how current or future economic conditions will affect our customers, consumers, suppliers, bottlers, distributors, joint venturebusiness partners, or other third partiesincluding financial institutions with whom we do business, and any negative impact on any of the foregoing may also have an adverse impact on our business, financial condition or results of operations.business.
In addition, some of the major financial institutions with which we execute transactions, including U.S. and non-U.S. commercial banks, insurance companies, investment banksFuture cyber incidents and other financial institutions, may be exposeddisruptions to a ratings downgrade, bankruptcy, liquidity events, default or similar risks as a result of unfavorable economic conditions, changing regulatory requirements or other factors beyond our control. A ratings downgrade, bankruptcy, receivership, default or similar event involving a major financial institution, or changes in the regulatory environment, may limit the ability or willingness of financial institutions to enter into financial transactions with us, including to provide banking or related cash management services, or to extend credit on terms commercially acceptable to us or at all; may leave us with reduced borrowing capacity or exposed to certain currencies or price risk associated with forecasted purchases of raw materials, including through our use of fixed-price contracts and purchase orders, pricing agreements and derivative instruments, including swaps and futures; or may result in a decline in the market value of our investments in debt securities, which could have an adverse impact on our business, financial condition or results of operations. Similar risks exist with respect to our customers, suppliers, bottlers, distributors and joint venture partners and could result in their inability to obtain credit to purchase our products or to finance the manufacture and distribution of our products resulting in canceled orders and/or product delays, which could also have an adverse impact on our reputation, business, financial condition or results of operations.
Our business and reputation could suffer if we are unable to protect our information systems against, or effectively respond to, cyberattacks or other cyber incidents or ifcan adversely affect our information systems, or those of our customers, suppliers, bottlers, contract manufacturers, distributors, joint venture partners or other third parties, are otherwise disrupted.business.
We depend on information systems and technology, some of which are provided by third parties, including public websites and cloud-based services, for many activities important to our business, including: to interfaceincluding communications within our company, interfacing with our customers and consumers; to engage in marketing activities; to enableordering and improve the effectiveness of our operations; to ordermanaging inventory; managing and manage materials from suppliers; to manage inventory; to manageoperating our facilities; to conduct research and development; to maintainprotecting confidential information, including personal data we collect; maintaining accurate financial records; to achieve operational efficiencies; to complyrecords and complying with regulatory, financial reporting, legal and tax requirements; to collectrequirements. Our business has in the past and store sensitive datacould in the future be negatively affected by system shutdowns, degraded systems performance, systems disruptions or security incidents. These disruptions or incidents may be caused by cyberattacks and confidential information; to communicate electronically among our global operations and withother cyber incidents, network or power outages, software, equipment or telecommunications failures, the unintentional or malicious actions of employees or contractors, natural disasters, fires or other catastrophic events. In addition, the increase in certain of our employees working remotely has resulted in increased demand on our information technology infrastructure, which can be subject to failure, disruption or unavailability, and the employees of our customers, suppliers, bottlers, contract manufacturers, distributors, joint venture partnersincreased vulnerability to cyberattacks and other third parties; and to communicate with our investors.cyber incidents.
As with other global companies, we are regularly subject to cyberattacks. Cyberattacks and other cyber incidents are occurring more frequently, the techniques used to gain access to information technology systems and data, disable or degrade service or sabotage systems are constantly evolving in nature, areand becoming more sophisticated in nature and are being madecarried out by groups and individuals (including criminal hackers, hacktivists, state-sponsored
institutions, terrorist organizations and individuals or groups participating in organized crime) with a wide range of expertise and motives (including monetizationmotives. In addition, the rapid evolution and increased adoption of corporate, paymentartificial intelligence technologies may increase our cybersecurity risks, including generative artificial intelligence augmenting threat actors’ technological sophistication to enhance existing or other internal or personal data, theft of trade secrets and intellectual property for competitive advantage and leverage for political, social, economic and environmental reasons). Such cyberattackscreate new malware. Cyberattacks and cyber incidents canmay be difficult to detect for periods of time and take many forms including cyber extortion, denial of service, social engineering, such as impersonation attempts to fraudulently induce employees or others to disclose information or unwittingly provide access to systems or data, introduction of viruses or malware such(such as ransomware through phishing emails,ransomware), exploiting vulnerabilities in hardware, software or other infrastructure, hacking, website defacement or theft of passwords and other credentials. Althoughcredentials, unauthorized use of computing resources for digital currency mining and business email compromise. As with other global companies, we may incur significant costs in protecting against or remediatingare regularly subject to cyberattacks orand other cyber incidents, no cyberattack or other cyber incidentincluding the types of attacks and incidents described above. Continued geopolitical instability has to our knowledge, had a material adverse effect on our business, financial condition or resultsheightened the risk of operations to date.
cyberattacks. If we do not allocate and effectively manage the resources necessary to buildcontinue building and maintainmaintaining our information technology infrastructure, including monitoring networks and systems, upgrading our security policies and the skills and training of our employees, and requiring our third-party service providers, customers, suppliers, bottlers, contract manufacturers, distributors, joint venture partners or other third parties to do the same, if we or they fail to timely identify or appropriately respond to cyberattacks or other cyber incidents, our business has been and can continue to be adversely affected, which has resulted in and can continue to result in some or ifall of the following: transaction errors, processing inefficiencies, inability to access our data or their information systems, are damaged, compromised, destroyed or shut down (whether as a result of natural disasters, fires, power outages, acts of terrorismlost revenues or other catastrophic events, network outages, software, equipment or telecommunications failures, technology development defects, user errors, or from deliberate cyberattacks such as malicious or disruptive software, denial of service attacks, malicious social engineering, hackers or otherwise), our business could be disrupted and we could, among other things, be subject to: transaction errors; processing inefficiencies; the loss of, or failure to attract, new customers and consumers; lost revenuescosts resulting from the disruptiondisruptions or shutdownshutdowns of computer systems or other information technology systems at our offices, plants, warehouses, distribution centers or other facilities, or the loss
intellectual property or trade secrets, including the loss or unauthorized disclosure of sensitive data or other assets; alteration, corruption or loss of accounting, financial or other data on which we rely for financial reporting and other purposes, which could cause delays in our financial reporting;loss, litigation, claims, legal or regulatory proceedings, inquiries or investigations, fines or penalties, remediation costs, damage to our reputation or brands; damage toa negative impact on employee customermorale and consumer relations; litigation; regulatory enforcement actions or fines; unauthorized disclosure of confidential personal information of our employees, customers or consumers; the loss of current or potential customers. In addition, these risks also exist in acquired businesses, joint ventures or companies we invest in or partner with that use separate information and/systems or supply chain disruption resulting from the failure of security patches to be developed and installed on a timely basis; violation of data privacy, security or other laws and regulations; and remediation costs.
Further,that have not yet been fully integrated into our information systems and the information stored therein could be compromised by, and we could experience similar adverse consequences due to, unauthorized outside parties accessing or extracting sensitive data or confidential information, corrupting information or disrupting business processes (or demonstrating an ability to do so) or by inadvertent or intentional actions by our employees, agents or third parties. We continue to devote significant resources to network security, backup and disaster recovery, and other security measures, including training, to protect our systems and data, but these security measures cannot provide absolute security or guarantee that we will be successful in preventing or responding to every such breach or disruption. In addition, due to the constantly evolving nature of these security threats, the form and impact of any future incident cannot be predicted.systems.
Similar risks exist with respect to theour business partners and third-party providers, including suppliers, software and cloud-based service providers, and other third-party vendors that we rely upon for aspects of our various business processes and activities, including procurement, supply chain, manufacturing, distribution, information technology support services and administrative functions including(including payroll processing, health and benefit plan administration and certain finance and accounting functions,functions) and the systems managed, hosted, provided and/or used by such third parties and their vendors. For example, malicious actors have employed and could continue to employ the information technology supply chain to introduce malware through software updates or compromised supplier accounts or hardware and exploit known or unknown hardware or software vulnerabilities in our systems or the systems of our vendors and third-party service providers. The need to coordinate with various third-party vendorsservice providers, including with respect to timely notification and access to personnel and information concerning an incident, may complicate our efforts to resolve anyaddress issues that may arise. As a result,
we are subject to the risk that the activities associated with our third-party vendors mayservice providers can adversely affect our business even if the attack or breach does not directly impact our systems or information. Moreover, our increased use of mobile and cloud technologies could heighten these
Although the cyber incidents and other operational risks, as certain aspectssystems disruptions that we have experienced to date have not had a material effect on our business, such incidents or disruptions could have a material adverse effect on us in the future. While we believe we devote significant resources to network security, disaster recovery, employee training and other measures to secure our information technology systems and prevent unauthorized access to or loss of the securitydata, there are no guarantees that they will be adequate to safeguard against all cyber incidents, systems disruptions, system compromises or misuses of such technologies may be complex, unpredictable or beyond our control.
Whiledata. In addition, while we currently maintain insurance coverage that, subject to its terms and conditions, is intended to address costs associated with certain aspects of cyber incidents networkand information systems failures, and data privacy-related concerns, this insurance coverage may not, depending on the specific facts and circumstances surrounding an incident, cover all losses or all types of claims that may arise from an incident, or the damage to our reputation or brands that may result from an incident.
Our business, financial condition or results of operations may be adversely affected by increased costs, disruption of supply or shortages of raw materials, energy, water and other supplies.
We and our business partners use various raw materials, energy, water and other supplies in our business. The principal ingredients we use in our beverage, food and snack products are apple, orange and pineapple juice and other juice concentrates, aspartame, corn, corn sweeteners, flavorings, flour, grapefruit, oranges and other fruits, oats, potatoes, raw milk, rice, seasonings, sucralose, sugar, vegetable and essential oils, and wheat. We also use water in the manufacturing of our products. Our key packaging materials include plastic resins, including PET and polypropylene resins used for plastic beverage bottles and film packaging used for snack foods, aluminum used for cans, glass bottles, closures, cardboard and paperboard cartons. Fuel, electricity and natural gas are also important commodities for our businesses due to their use in our and our business partners’ facilities and the vehicles delivering our products.
Some of these raw materials and supplies are sourced from countries experiencing civil unrest, political instability or unfavorable economic conditions, and some are available from a limited number of suppliers or a sole supplier or are in short supply when seasonal demand is at its peak. We cannot assure that we will be able to maintain favorable arrangements and relationships with these suppliers or that our contingency plans, including development of ingredients, materials or supplies to replace ingredients, materials or supplies sourced from such suppliers, will be effective in preventing disruptions that may arise from shortages or discontinuation of any ingredient that is sourced from such suppliers. In addition, increasing focus on climate change, deforestation, water, animal welfare and human rights concerns and other risks associated with the global food system may lead to increased activism focusing on consumer goods companies, governmental intervention and consumer response, and could adversely affect our or our suppliers’ reputation and business and our ability to procure the materials we need to operate our business. The raw materials and energy, including fuel, that we use for the manufacturing, production and distribution of our products are largely commodities that are subject to price volatility and fluctuations in availability caused by many factors, including changes in global supply and demand, weather conditions (including any potential effects of climate change), fire, natural disasters (such as a hurricane, tornado, earthquake or flooding), disease or pests, agricultural uncertainty, health epidemics or pandemics, governmental incentives and controls (including import/export restrictions), political uncertainties, acts of terrorism, governmental instability or currency exchange rates. Shortage of some of these raw materials and other supplies, sustained interruption in their supply or an increase in their costs could adversely affect our business, financial condition or results of operations. Many of our ingredients, raw materials and commodities are purchased in the open market. The prices we pay for such items are subject to fluctuation, and we manage this risk through the use of fixed-price contracts and purchase orders, pricing agreements and derivative instruments, including swaps and futures. If commodity price changes result in unexpected or significant increases in raw materials and energy costs, we may be unwilling or unable to increase our product prices or unable to effectively hedge against commodity price increases to offset these increased costs without suffering reduced volume, revenue, margins and operating results. In addition, certain of the derivatives used to hedge price risk do not qualify for hedge
accounting treatment and, therefore, can result in increased volatility in our net earnings in any given period due to changes in the spot prices of the underlying commodities.
Water is a limited resource in many parts of the world. The lack of available water of acceptable quality and increasing pressure to conserve water in areas of scarcity and stress may lead to: supply chain disruption; adverse effects on our operations; higher compliance costs; capital expenditures (including additional investments in the development of technologies to enhance water efficiency and reduce water consumption); higher production costs; the cessation of operations at, or relocation of, our facilities or the facilities of our suppliers, bottlers, contract manufacturers, distributors, joint venture partners or other third parties; or damage to our reputation, any of which could adversely affect our business, financial condition or results of operations.
Business disruptions could have an adverse impact on our business, financial condition or results of operations.
Our ability, and that of our suppliers and other third parties, including our bottlers, contract manufacturers, joint venture partners, distributors and customers, to make, manufacture, transport, distribute and sell products in our portfolio is critical to our success. Damage or disruption to our or their operations due to any of the following factors could impair the ability to make, manufacture, transport, distribute or sell products in our portfolio: adverse weather conditions (including any potential effects of climate change) or natural disasters, such as a hurricane, tornado, earthquake or flooding; government action; economic or political uncertainties or instability in countries in which such products are made, manufactured, distributed or sold, which may also affect our ability to protect the security of our assets and employees; fire; terrorism; outbreak or escalation of armed hostilities; food safety warnings or recalls, whether related to products in our portfolio or otherwise; health epidemics or pandemics; supply and commodity shortages; unplanned delays or unexpected problems associated with repairs or enhancements of facilities in which such products are made, manufactured, distributed or sold; loss or impairment of key manufacturing sites; cyber incidents, including the disruption or shutdown of computer systems or other information technology systems at our offices, plants, warehouses, distribution centers or other facilities or those of our suppliers and other third parties who make, manufacture, transport, distribute and sell products in our portfolio; industrial accidents or other occupational health and safety issues; telecommunications failures; power or water shortages; strikes and other labor disputes; or other reasons beyond our control or the control of our suppliers and other third parties. Failure to take adequate steps to mitigate the likelihood or potential impact of such events, or to effectively manage such events if they occur, could adversely affect our business, financial condition or results of operations, as well as require additional resources to restore operations.
Product contamination or tampering or issues or concerns with respect to product quality, safety and integrity could adversely affect our business, reputation, financial condition or results of operations.
Product contamination or tampering, the failure to maintain high standards for product quality, safety and integrity, including with respect to raw materials and ingredients obtained from suppliers, or allegations (whether or not valid) of product quality issues, mislabeling, misbranding, spoilage, allergens, adulteration or contamination with respect to products in our portfolio may reduce demand for such products, and cause production and delivery disruptions or increase costs, which could adversely affect our business, reputation, financial condition or results of operations. If any of the products in our portfolio are mislabeled or become unfit for consumption or cause injury, illness or death, or if appropriate resources are not devoted to product quality and safety (particularly as we expand our portfolio into new categories) or to comply with changing food safety requirements, we could decide to, or be required to, recall products in our portfolio and/or we may be subject to liability or government action, which could result in payment of damages or fines, cause certain products in our portfolio to be unavailable for a period of time, result in destruction of product inventory, or result in adverse publicity (whether or not valid), which could reduce consumer demand and
brand equity. Moreover, even if allegations of product contamination or tampering or suggestions that our products were not fit for consumption are meritless, the negative publicity surrounding assertions against us or products in our portfolio or processes could adversely affect our reputation or brands. Our business could also be adversely affected if consumers lose confidence in product quality, safety and integrity generally, even if such loss of confidence is unrelated to products in our portfolio. Any of the foregoing could adversely affect our business, reputation, financial condition or results of operations. In addition, if we do not have adequate insurance, if we do not have enforceable indemnification from suppliers, bottlers, contract manufacturers, distributors, joint venture partners or other third parties or if indemnification is not available, the liability relating to such product claims or disruption as a result of recall efforts could materially adversely affect our business, financial condition or results of operations.
Any damage to our reputation or brand image could adversely affect our business, financial condition or results of operations.
We are a leading global beverage, food and snack company with brands that are respected household names throughout the world. Maintaining a good reputation globally is critical to selling our branded products. Our reputation or brand image could be adversely impacted by any of the following, or by adverse publicity (whether or not valid) relating thereto: the failure to maintain high ethical, social and environmental practices for all of our operations and activities, including with respect to human rights, child labor laws and workplace conditions and safety, or failure to require our suppliers or other third parties to do so; the failure to achieve our goals of reducing added sugars, sodium and saturated fat in certain of our products and of growing our portfolio of product choices; the failure to achieve our other sustainability goals or to be perceived as appropriately addressing matters of social responsibility; the failure to protect our intellectual property, including in the event our brands are used without our authorization; health concerns (whether or not valid) about our products or particular ingredients or substances in, or attributes of, our products, including concerns regarding whether certain of our products contribute to obesity; the imposition or proposed imposition of new or increased taxes, labeling requirements or other limitations on, or pertaining to, the sale, display or advertising of our products; any failure to comply, or perception of a failure to comply, with our policies and goals, including those regarding advertising to children and reducing calorie consumption from sugar-sweetened beverages; our research and development efforts; the recall (voluntary or otherwise) of any products in our portfolio; our environmental impact, including use of agricultural materials, packaging, water, energy use and waste management; any failure to achieve our goals with respect to reducing our impact on the environment, or perception of a failure to act responsibly with respect to water use and the environment; any failure to achieve our goals with respect to human rights throughout our value chain; the practices of our employees, agents, customers, distributors, suppliers, bottlers, contract manufacturers, joint venture partners or other third parties (including others in our industry) with respect to any of the foregoing, actual or perceived; consumer perception of our industry; consumer perception of our advertising campaigns, sponsorship arrangements or marketing programs; consumer perception of our use of social media; consumer perception of statements made by us, our employees and executives, agents, customers, suppliers, bottlers, distributors, joint venture partners or other third parties (including others in our industry); or our responses or the responses of others in our industry to any of the foregoing.
In addition, we operate globally, which requires us to comply with numerous local regulations, including, without limitation, anti-corruption laws, competition laws and tax laws and regulations of the jurisdictions in which our products are made, manufactured, distributed or sold. In the event that we or our employees engage in or are believed to have engaged in improper activities, we may be subject to regulatory proceedings, including enforcement actions, litigation, loss of sales or other consequences, which may cause us to suffer damage to our reputation in the United States or abroad. Failure to comply with local laws and regulations, to maintain an effective system of internal control or to provide accurate and timely financial information could also hurt our reputation. In addition, water is a limited resource in many parts of the world and demand
for water continues to rise. Our reputation could be damaged if we or others in our industry do not act, or are perceived not to act, responsibly with respect to water use.
Further, the popularity of social media and other consumer-oriented technologies has increased the speed and accessibility of information dissemination. As a result, negative or inaccurate posts or comments about us, our products, policies, practices, advertising campaigns and marketing programs or sponsorship arrangements; our use of social media or of posts or other information disseminated by us or our employees, agents, customers, suppliers, bottlers, distributors, joint venture partners or other third parties; consumer perception of any of the foregoing, or failure by us to respond effectively to any of the foregoing, may also generate adverse publicity (whether or not valid) that could damage our reputation.
Damage to our reputation or brand image or loss of consumer confidence in our products or employees for any of these or other reasons could result in decreased demand for our products and could adversely affect our business, financial condition or results of operations, as well as require additional resources to rebuild our reputation.
Failure to successfully complete or integrate acquisitions and joint ventures into our existing operations, or to complete or effectively manage divestitures or refranchisings, couldstrategic transactions can adversely affect our business, financial condition or results of operations.business.
We regularly review our portfolio of businesses and evaluate potential acquisitions, joint ventures, distribution agreements, divestitures, refranchisings and other strategic transactions. Potential issues associated withThe success of these activities could include,transactions is dependent upon, among other things:things, our ability to realize the full extent of the expected returns, benefits, cost savings or synergies as a result of a transaction, within the anticipated time frame, or at all; and receipt of necessary consents, clearances and approvals in connectionapprovals. Risks associated with a transaction; and diversion of management’s attention from day-to-day operations.
With respect to acquisitions, the following factors also pose potential risks: our ability to successfully combine our businesses with the business of the acquired company, includingstrategic transactions include integrating the acquired company’s manufacturing, distribution, sales, accounting, financial reporting and administrative support activities and information technology systems with our company; our ability to successfully operatecompany or difficulties separating such personnel, activities and systems in connection with divestitures; operating through new business models or in new categories or territories; motivating, recruiting and retaining executives and key employees; conforming standards, controls (including internal control over financial reporting, disclosure controls and procedures and data protection and cybersecurity) and policies (including with respect to environmental compliance, health and safety compliance and compliance with other laws and regulations), procedures and policies, business cultures and compensation structures between us and the acquired company; consolidating and streamlining corporate and administrative infrastructures and avoiding increased operating expenses; consolidating sales and marketing operations;anti-bribery laws); retaining existing customers and consumers and attracting new customers; retaining existing distributors; identifyingcustomers and eliminating redundant and underperforming operations and assets; coordinating geographically dispersed organizations;consumers; managing tax costs or inefficienciesinefficiencies; maintaining good relations with divested or refranchised businesses in our supply or sales chain; inability to offset loss of revenue associated with integratingdivested brands or businesses; recognition of impairment charges in connection with potential divestitures; managing the impact of business
decisions or other actions or omissions of our operations following completion of an acquisition;joint venture partners that may have different interests than we do; and other unanticipated problems or liabilities, such as contingent liabilities and litigation.
With respect to joint ventures, we share ownership and management responsibility with one or more parties who may or may not have the same goals, strategies, priorities, resources or values as we do. Joint ventures Strategic transactions that are intended to be operated for the benefit of all co-owners, rather than for our exclusive benefit. Business decisions or other actions or omissions of our joint venture partners may adversely affect the value of our investment, result in litigation or regulatory action against us or otherwise damage our reputation and brands and adversely affect our business, financial condition or results of operations.
In addition, acquisitions and joint ventures outside of the United States increase our exposure to risks associated with operations outside of the United States, including fluctuations in exchange rates and
compliance with the Foreign Corrupt Practices Act and other anti-corruption and anti-bribery laws and laws and regulations outside the United States.
With respect to divestitures and refranchisings, we may not be able to complete or effectively manage such transactions on terms commercially favorable to us or at all and may fail to achieve the anticipated benefits or cost savings from the divestiture or refranchising. Further, as divestitures and refranchisings may reduce our direct control over certain aspects of our business, any failure to maintain good relations with divested or refranchised businesses in our supply or sales chain may adversely impact our sales or business performance.
If an acquisition or joint venture is not successfully completed or integrated into our existing operations, or if a divestiture or refranchising is not successfully completed or managed effectively, or does notour failure to effectively manage the risks associated with such transactions, have in the past and could continue to result in adverse effects on our business.
Our reliance on third-party service providers and enterprise-wide systems can have an adverse effect on our business.
We rely on third-party service providers, including software and cloud data service providers, for certain areas of our business, including procurement, supply chain, manufacturing, distribution, information technology support services and administrative functions (such as payroll processing, health and benefit plan administration and certain finance and accounting functions). Failure by these third parties to meet their contractual, regulatory and other obligations to us, or our failure to adequately monitor their performance, has in the benefits orpast and could continue to result in our inability to achieve the expected cost savings or efficiencies and result in additional costs to correct errors made by such service providers. Depending on the function involved, such errors can also lead to business disruption, systems performance degradation, processing inefficiencies or other systems disruptions, the loss of or damage to intellectual property or sensitive data through security breaches or otherwise, incorrect or adverse effects on financial reporting, litigation, claims, legal or regulatory proceedings, inquiries or investigations, fines or penalties, remediation costs, damage to our reputation or have a negative impact on employee morale, all of which can adversely affect our business.
In addition, we expect,continue on our multi-year phased business transformation initiative to migrate certain of our systems, including our financial processing systems, to enterprise-wide systems solutions and have deployed these systems in certain countries and divisions. We have experienced and could continue to experience systems outages and operating inefficiencies following these planned implementations. In addition, if we do not allocate and effectively manage the resources necessary to build and sustain the proper information technology infrastructure, or if we fail to achieve the expected benefits from this initiative, our business financial condition or results of operations maycould be adversely affected.
Climate change or measures to address climate change and other sustainability matters can negatively affect our business or damage our reputation.
Climate change may increase the frequency or severity of natural disasters and other extreme weather conditions, including rising temperatures and drought. Natural disasters and extreme weather conditions could pose physical risks to our facilities, impair our production capabilities, disrupt our supply chain or impact demand for our products. In addition, climate change or other weather-related disruptions to our supply chain may also have a negative effect on agricultural production resulting in decreased availability or less favorable pricing for certain commodities that are necessary for our products, such as potatoes, sugar cane, corn, wheat, rice, oats, oranges and other commodities. Also, there is an increased focus in many jurisdictions in which our products are made, manufactured, distributed or sold regarding environmental policies relating to climate change, biodiversity loss, deforestation, regulating greenhouse gas emissions, energy policies and sustainability, including single-use plastics. This increased focus may result in new or increased legal and regulatory requirements, such as potential carbon pricing programs or revised product labeling requirements or other regulatory measures, which could, along with initiatives to meet our sustainability goals, continue to result in significant increased costs and require additional investments in facilities and equipment. As a result, the effects of climate change can negatively affect our business and operations. In addition, working toward achieving our sustainability goals will require significant effort and resources from us and other stakeholders, such as our suppliers and other third parties, governmental entities, and the development of technology that may not currently exist or exist at scale. Lack of progress or failure to properly report on our goals with respect to reducing our impact on
the environment or perception of a failure to act responsibly with respect to the environment or to effectively respond to regulatory requirements concerning climate change and other sustainability matters, including the use of single-use plastics, can lead to adverse publicity, which could result in reduced demand for our products, damage to our reputation or increase the risk of litigation, regulatory proceedings, inquiries or investigations. Any of the foregoing can adversely affect our business.
Strikes or work stoppages can cause our business to suffer.
Many of our employees and employees of third parties that are involved in the manufacturing, production or distribution of our products are covered by collective bargaining agreements, and other employees may seek to be covered by collective bargaining agreements. Strikes or work stoppages or other business interruptions have occurred and may occur in the future if we or the third parties that are involved in the manufacturing, production and distribution of our products are unable to renew, or enter into new, collective bargaining agreements on satisfactory terms and can impair manufacturing and distribution of our products, interrupt product supply, lead to a loss of sales, increase our costs or otherwise affect our ability to fully implement future operational changes to enhance our efficiency or to adapt to changing business needs or strategy, all of which can adversely affect our business.
Financial Risks
Failure to realize benefits from our productivity initiatives can adversely affect our financial performance.
Our future growth depends, in part, on our ability to continue to reduce costs and improve efficiencies, including our multi-year phased implementation of shared business service organizational models. We continue to identify and implement productivity initiatives that we believe will position our business for long-term sustainable growth by allowing us to achieve a lower cost structure, improve decision-making and operate more efficiently. Some of these measures result in unintended consequences, such as business disruptions, distraction of management and employees, reduced morale and productivity, unexpected employee attrition, an inability to attract or retain key personnel and negative publicity. If we are unable to successfully implement our productivity initiatives as planned or do not achieve expected savings as a result of these initiatives, we may not realize all or any of the anticipated benefits, resulting in adverse effects on our financial performance.
A changedeterioration in our estimates and underlying assumptions regarding the future performance of our businesses couldbusiness or investments can result in an impairment charge, which could materiallycharges that adversely affect our results of operations.
We conduct impairment tests on our goodwill and other indefinite-lived intangible assets as well as other investments and other long-lived assets annually during our third quarter, or more frequently if circumstances indicate that impairment may have occurred. In addition, amortizable intangible assets, equity method investments, equity investments without readily determinable fair values, investments in available-for-sale debt securities, property, plant and equipment and other long-lived assets are evaluated for impairment upon a significant change in the carrying value may not be recoverableoperating or that an other-than-temporarymacroeconomic environment. Our equity method investees also perform similar impairment exists. Any changestests and we record our proportionate share of impairment charges recorded by them, adjusted for the impact of items such as basis differences and deferred taxes, as appropriate. A deterioration in our estimates or underlying assumptions, or those of our equity method investees, regarding the impact of competitive operating conditions, geopolitical conditions (including the ongoing conflicts in Ukraine and the Middle East), macroeconomic conditions, including the interest rate environment, or other factors used to estimate the future performance of any of our reporting units or in determining the fair value ofassets, including any such reporting unit, including goodwill, indefinite-lived intangible assets, as well as other investments and other long-lived assets, could adversely affect our results of operations. Factors that could result in an impairment include, but are not limited to: significant negative economic or industry trends or competitive operating conditions; significant macroeconomic conditions that may result in a future increasedeterioration in the weighted-average cost of capital usedbased on market data available at the time, as well as our ability to estimatehold the investment until recovery of fair value;value to amortized cost for available-for-sale debt securities, have resulted and significant changescould in the nature and timing of decisions regarding assets or markets that do not perform consistent with our expectations, including factors we use to estimate future levels of sales, operating profit or cash flows. Futureresult in an impairment charges could have a significant adverse effect oncharge, thereby adversely affecting our results of operationsoperations.
Fluctuations in exchange rates impact our financial performance.
Because our consolidated financial statements are presented in U.S. dollars, the periods recognized.
Increases in income tax rates, changes in income tax laws or disagreements with tax authorities could adversely affectfinancial statements of our business, financial condition or results of operations.
We are subject to income taxes in the United States and in certain foreign jurisdictions in which we operate. Increases in income tax rates or other changes in income tax laws in any particular jurisdiction could reduce our after-tax income from such jurisdiction and could adversely affect our business, financial condition or results of operations. Our operationssubsidiaries outside the United States, generate a significant portion ofwhere the functional currency is other than the U.S. dollar, are translated into U.S. dollars. Given our income. In addition,global operations, we also pay for the United Statesingredients, raw materials and many of the other countriescommodities used in which our products are made, manufactured, distributed or sold, including countries in which we have significant operations, have recently made or are actively considering changes to existing tax laws. For example, on December 22, 2017, the Tax Cuts and Jobs Act (TCJ Act) was signed into law in the United States. The changes in the TCJ Act are broad and complex and we continue to examine the impact the TCJ Act may have on our business in numerous currencies. Fluctuations in exchange rates, including as a result of inflation, central bank monetary policies, currency controls or other currency exchange restrictions or geopolitical instability have had, and financial results. Among its many provisions, the TCJ Act imposed a mandatory one-time transition tax on undistributed international earnings regardless of whether they are repatriated, reduced the U.S. corporate income tax rate from 35%could continue to 21%, imposed limitations on the deductibility of interest and certain other corporate deductions, and moved from a “worldwide” system of taxation that generally allows deferral of U.S. tax on international earnings until repatriated to a “territorial”/dividend exemption system with a minimum tax that will subject international earnings to U.S. tax when earned. In accordance with applicable SEC guidance, we recorded a provisional net tax expense in the fourth quarter of 2017 resulting from the enactment of the TCJ Act. This provisional expense is subject to change, possibly materially, due to, among other things, changes in estimates,
interpretations and assumptions we have made, changes in Internal Revenue Service (IRS) interpretations, the issuance of new guidance, legislative actions, changes in accounting standards or related interpretations in response to the TCJ Act and future actions by states within the United States that have not currently adopted the TCJ Act. For further information regarding the potential impact of the TCJ Act, see “Our Liquidity and Capital Resources” and “Our Critical Accounting Policies” in Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations and Note 5 to our consolidated financial statements.
Additional changes in the U.S. tax regime or in how U.S. multinational corporations are taxed on foreign earnings, including changes in how existing tax laws are interpreted or enforced, could adversely affect our business, financial condition or results of operations.
We are also subject to regular reviews, examinations and audits by the IRS and other taxing authorities with respect to income and non-income based taxes both within and outside the United States. Economic and political pressures to increase tax revenues in jurisdictions in which we operate, or the adoption of new or reformed tax legislation or regulation, may make resolving tax disputes more difficult and the final resolution of tax audits and any related litigation could differ from our historical provisions and accruals, resulting in an adverse impact on our business, financial condition or results of operations. In addition, in connection with the Organisation for Economic Co-operation and Development Base Erosion and Profit Shifting project, companies are required to disclose more information to tax authorities on operations around the world, which may lead to greater audit scrutiny of profits earned in various countries.
Failure to realize anticipated benefits from our productivity initiatives or global operating model could have, an adverse impact on our business, financial condition or results of operations.
Our future success and earnings growth depend, in part, on our ability to continue to reduce costs and improve efficiencies. Our productivity initiatives help support our growth initiatives and contribute to our results of operations. We continue to implement strategic plans that we believe will position our business for future success and long-term sustainable growth by allowing us to achieve a lower cost structure and operate more efficiently in the highly competitive beverage, food and snack categories and markets. We are also continuing to implement our global operating model to improve efficiency, decision making, innovation and brand management across the global PepsiCo organization to enable us to compete more effectively. Further, in order to continue to capitalize on our cost reduction efforts and our global operating model, it will be necessary to make certain investments in our business, which may be limited due to capital constraints. Some of these measures could yield unintended consequences, such as business disruptions, distraction of management and employees, reduced employee morale and productivity, and unexpected additional employee attrition, including the inability to attract or retain key personnel. It is critical that we have the appropriate personnel in place to continue to lead and execute our plans, including to effectively manage personnel adjustments and transitions resulting from these initiatives and increased competition for employees with the skills necessary to implement our plans. If we are unable to successfully implement our productivity initiatives and global operating model as planned, fail to implement these initiatives as timely as we anticipate, do not achieve expected savings as a result of these initiatives or incur higher than expected or unanticipated costs in implementing these initiatives, fail to identify and implement additional productivity opportunities in the future, or fail to successfully manage business disruptions or unexpected employee consequences on our workforce, morale or productivity, we may not realize all or any of the anticipated benefits, which could adversely affect our business, financial condition or results of operations.
If we are unable to recruit, hire or retain key employees or a highly skilled and diverse workforce, it could have a negative impact on our business, financial condition or results of operations.
Our continued growth requires us to recruit, hire, retain and develop our leadership bench and a highly skilled and diverse workforce. We compete to recruit and hire new employees and then must train them and develop
their skills and competencies. Our employees are highly sought after by our competitors and other companies and our continued ability to compete effectively depends on our ability to retain, develop and motivate highly skilled personnel for all areas of our organization. Any unplanned turnover or unsuccessful implementation of our succession plans to backfill current leadership positions, including the Chief Executive Officer, or to hire and retain a highly skilled and diverse workforce could deplete our institutional knowledge base and erode our competitive advantage or result in increased costs due to increased competition for employees, higher employee turnover or increased employee benefit costs. Any of the foregoing could adversely affect our reputation, business, financial condition or results of operations.
The loss of, or a significant reduction in sales to, any key customer or disruption in the retail landscape, including rapid growth in hard discounters and the e-commerce channel, could adversely affect our business, financial condition or results of operations.
Our customers include wholesale and other distributors, foodservice customers, grocery stores, drug stores, convenience stores, discount/dollar stores, mass merchandisers, membership stores, hard discounters, e-commerce retailers and authorized independent bottlers, among others. We must maintain mutually beneficial relationships with our key customers, including Wal-Mart, to compete effectively. Any inability to resolve a significant dispute with any of our key customers, a change in the business condition (financial or otherwise) of any of our key customers, even if unrelated to us, a significant reduction in sales to any key customer, or the loss of any of our key customers could adversely affect our business, financial condition or results of operations.
In addition, our industry has been affected by changes to the retail landscape, including the rapid growth in sales through e-commerce websites and mobile commerce applications as well as the integration of physical and digital operations among retailers. We are making significant investments in attracting talent to and building our global e-commerce capabilities. Although we are engaged in e-commerce with respect to many of our products, if we are unable to maintain and develop successful relationships with existing and new e-commerce retailers or otherwise adapt to the growing e-commerce landscape, while simultaneously maintaining relationships with our key customers operating in traditional retail channels, we may be disadvantaged in certain channels and with certain customers and consumers, which could adversely affect our business, financial condition or results of operations. In addition, the growth in e-commerce may result in consumer price deflation, which may affect our relationships with key retail customers. If these e-commerce retailers were to take significant market share away from traditional retailers and/or we fail to adapt to the rapidly changing retail and e-commerce landscapes, our ability to maintain and grow our share of sales or volume and our business, financial condition or results of operations could be adversely affected.
Further, the retail landscape continues to be impacted by the increased consolidation of retail ownership and purchasing power, particularly in North America, Europe and Latin America, resulting in large retailers with increased purchasing power, which may impact our ability to compete in these areas. Such retailers may demand improved efficiency, lower pricing and increased promotional programs. Further, should larger retailers increase utilization of their own distribution networks, other distribution channels such as e-commerce, or private label brands, the competitive advantages we derive from our go-to-market systems and brand equity may be eroded. In addition, the growth of hard discounters that are focused on limiting the number of items they sell and selling predominantly private label brands may reduce our ability to sell our products through such retailers. Failure to appropriately respond to any of the foregoing, including failure to offer effective sales incentives and marketing programs to our customers, could reduce our ability to secure adequate shelf space and product availability at our retailers, adversely affect our ability to maintain or grow our share of sales or volume, and adversely affect our business, financial condition or results of operations.
performance.
Our borrowing costs and access to capital and credit markets maycan be adversely affected by a downgrade or potential downgrade of our credit ratings.
Rating agencies routinely evaluate us and their ratings of our long-term and short-term debt are based on a number of factors, including our cash generating capability, levels of indebtedness, policies with respect to shareholder distributions and our financial strength generally, as well as factors beyond our control, such as the then-current state of the economy and our industry generally. Any downgrade of our credit ratings by a credit rating agency, especially any downgrade to below investment grade, whether as a result of our actions or factors which are beyond our control, could increase our future borrowing costs, impair our ability to access capital and credit markets on terms commercially acceptable to us or at all, and result in a reduction in our liquidity.industry. We expect to maintain Tier 1 commercial paper access, which we believe will facilitate appropriate financial flexibility and ready access to global credit markets at favorable interest rates. However, anyAny downgrade or announcement that we are under review for a potential downgrade of our current short-term credit ratings, couldespecially any downgrade to below investment grade, can increase our future borrowing costs, impair our ability to access capital and credit markets on terms commercially acceptable to us or at all, result in a reduction in our liquidity, or impair our ability to access the commercial paper market with the same flexibility that we have experienced historically and(and therefore require us to rely more heavily on more expensive types of debt financing. Our borrowing costs and access to the commercial paper market could also be adversely affected if a credit rating agency announces that our ratings are under review for a potential downgrade. An increase in our borrowing costs, limitations on our ability to access the global capital and credit markets or a reduction in our liquidity couldfinancing), all of which can adversely affect our financial conditionperformance.
Legal, Tax and resultsRegulatory Risks
Taxes aimed at our products can adversely affect our business or financial performance.
Certain jurisdictions in which our products are sold have either imposed, or are considering imposing, new or increased taxes on the manufacture, distribution or sale of operations.certain of our products, particularly our beverages, as a result of ingredients contained in our products. These taxes vary in scope and form: some apply to all beverages, including non-caloric beverages, while others apply only to beverages with a caloric sweetener (e.g., sugar). Similarly, some measures apply a single tax rate per ounce/liter on beverages containing over a certain amount of added sugar (or other sweetener), some apply a graduated tax rate depending upon the amount of added sugar (or other sweetener) in the beverage and others apply a flat tax rate on beverages containing any amount of added sugar (or other sweetener). For example, Romania enacted a graduated tax on all non-alcoholic beverages, effective January 1, 2024, at a rate of 0.4 Romanian Leu (0.09 U.S. dollars) per liter for drinks with a sugar content between 5-8g per 100ml and 0.6 Romanian Leu (0.13 U.S. dollars) per liter for drinks with a sugar content between above 8g per 100ml.These tax measures, whatever their scope or form, have in the past and could continue to increase the cost of certain of our products, reduce overall consumption of our products or lead to negative publicity, resulting in an adverse effect on our business and financial performance.
Limitations on the marketing or sale of our products can adversely affect our business and financial performance.
Certain jurisdictions in which our products are sold have either imposed, or are considering imposing, limitations on the marketing or sale of our products as a result of ingredients or substances in our products or product packaging. These limitations require that we highlight perceived concerns about a product or product packaging, warn consumers to avoid consumption of certain ingredients or substances present in our products, restrict the age of consumers to whom products are marketed or sold, limit the location in which our products may be available or discontinue the use of certain ingredients or packaging. For
example, Colombia enacted warning labeling requirements effective in 2023 to indicate whether a particular pre-packaged food product contains any amount of sweeteners or is considered to be high in added sugar, sodium, saturated fat or trans-fat. Certain jurisdictions have imposed or are considering imposing color-coded labeling requirements where colors such as red, yellow and green are used to indicate various levels of a particular ingredient, such as sugar, sodium or saturated fat, in products. The imposition or proposed imposition of additional limitations on the marketing or sale of our products has in the past reduced and could continue to reduce overall consumption of our products, lead to negative publicity or leave consumers with the perception that our products do not meet their health and wellness needs, resulting in an adverse effect on our business and financial performance.
Laws and regulations related to the use or disposal of plastics or other packaging materials can adversely affect our business and financial performance.
We rely on diverse packaging solutions to safely deliver products to our customers and consumers. Certain of our products are sold in packaging designed to be recyclable, commercially compostable, biodegradable or reusable. However, not all packaging is recovered, whether due to lack of infrastructure, improper disposal or otherwise, and certain of our packaging is not currently recyclable, commercially compostable, biodegradable or reusable. Packaging waste not properly disposed of that displays one or more of our brands has in the past resulted in and could continue to result in negative publicity, litigation, government investigations or other action or reduced consumer demand for our products, adversely affecting our financial performance. Many jurisdictions in which our products are sold have imposed or are considering imposing laws, regulations or policies intended to encourage the use of sustainable packaging, waste reduction, increased recycling rates or decreased use of single-use plastics or to restrict the sale of products utilizing certain packaging. These laws, regulations and policies vary in form and scope and include extended producer responsibility policies, plastic or packaging taxes, minimum recycled content requirements, restrictions on certain products and materials, requirements for bottle caps to be tethered to bottles, restrictions or bans on the use of certain types of packaging, including single-use plastics and packaging containing PFAS, restrictions on labeling related to recyclability, requirements to charge deposit fees and requirements to scale reusable or refillable packaging. For example, the European Union, Peru, South Africa and certain states in the United States, among other jurisdictions, have imposed a minimum recycled content requirement for beverage bottle packaging and similar legislation is under consideration in other jurisdictions. These laws and regulations have in the past increased and could continue to increase the cost of our products, impact demand for our products, result in negative publicity and require us and our business partners, including our independent bottlers, to increase capital expenditures to invest in reducing the amount of virgin plastic or other materials used in our packaging, to develop alternative packaging or to revise product labeling, all of which can adversely affect our business and financial performance.
Failure to comply with personal data protection and privacy laws can adversely affect our business.
We are subject to a variety of continuously evolving and developing laws and regulations in numerous jurisdictions regarding personal data protection and privacy laws. These laws and regulations may be interpreted and applied differently from country to country or, within the United States, from state to state, and can create inconsistent or conflicting requirements. Our efforts to comply with these laws and regulations, including the California Consumer Privacy Act, which was significantly modified by the California Privacy Rights Act, as well as comprehensive privacy legislation in Virginia, Colorado, Utah and Connecticut that became effective in 2023, as well as the European Union’s General Data Protection Regulation (GDPR), the U.K. General Data Protection Regulation (which implements the GDPR into U.K. law) and China’s Personal Information Protection Act, impose significant costs and challenges that are likely to continue to increase over time, particularly as additional jurisdictions continue to adopt similar regulations. Failure to comply with these laws and regulations or to otherwise protect personal data from
unauthorized access, use or other processing, have in the past and could in the future result in litigation, claims, legal or regulatory proceedings, inquiries or investigations, damage to our reputation, fines or penalties, all of which can adversely affect our business.
Increases in income tax rates, changes in income tax laws or disagreements with tax authorities can adversely affect our financial performance.
Increases in income tax rates or other changes in tax laws, including changes in how existing tax laws are interpreted or enforced, can adversely affect our financial performance. For example, economic and political conditions in countries where we are subject to taxes, including the United States, have in the past and could continue to result in significant changes in tax legislation or regulation. For example, numerous countries have agreed to a statement in support of the Organization for Economic Co-operation and Development model (OECD) rules that propose a partial global profit reallocation and a global minimum tax rate of 15%. Certain countries, including European Union member states, have enacted or are expected to enact legislation incorporating the global minimum tax with effect as early as 2024 and widespread implementation of a global minimum tax is expected by 2025. As the legislation becomes effective in countries in which we do business, our taxes could increase and negatively impact our provision for income taxes. This increasingly complex global tax environment has in the past and could continue to increase tax uncertainty, resulting in higher compliance costs and adverse effects on our financial performance. We are also subject to regular reviews, examinations and audits by numerous taxing authorities with respect to income and non-income based taxes. Economic and political pressures to increase tax revenues in jurisdictions in which we operate, or the adoption of new or reformed tax legislation or regulation, has made and could continue to make resolving tax disputes more difficult and the final resolution of tax audits and any related litigation can differ from our historical provisions and accruals, resulting in an adverse effect on our financial performance.
If we are not able to successfully implement shared services or utilize information technology systems and networks effectively, our ability to conduct our business may be negatively impacted.
We have entered into agreements with third-party service providers to utilize certain information technology support services and administrative functions, including payroll processing, health and benefit plan administration and certain finance and accounting functions, and may enter into agreements for shared services in other functions in the future to achieve cost savings and efficiencies. In addition, we utilize cloud-based services and systems and networks managed by third-party vendors to process, transmit and store information and to conduct certain of our business activities and transactions with employees, customers, consumers and other third parties. If any of these third-party service providers or vendors do not perform effectively, or if we fail to adequately monitor their performance, we may not be able to achieve the expected cost savings or we may have to incur additional costs to correct errors made by such service providers and our reputation could be harmed. Depending on the function involved, such errors may also lead to business disruption, processing inefficiencies, the loss of or damage to intellectual property or sensitive data through security breaches or otherwise, adverse effects on financial reporting, litigation or remediation costs, or damage to our reputation, which could have a negative impact on employee morale.
We continue on our multi-year business transformation initiative to migrate certain of our systems, including our financial processing systems, to enterprise-wide systems solutions. These systems implementations are part of our ongoing global business transformation initiative, and we plan to continue implementing such systems throughout other parts of our businesses. If we do not allocate and effectively manage the resources necessary to build and sustain the proper information technology infrastructure, or if we fail to achieve the expected benefits from this initiative, it may impact our ability to process transactions accurately and efficiently, and remain in step with the changing needs of our business, which could result in the loss of customers or consumers and revenue. In addition, the failure to either deliver the applications on time, or anticipate the necessary readiness and training needs, could lead to business disruption and loss of customers or consumers and revenue. In connection with these implementations and resulting business process changes, we continue to enhance the design and documentation of business processes and controls, including our internal control over financial reporting processes, to maintain effective controls over our financial reporting. To date, this transition has not materially affected, and we do not expect it to materially affect, our internal
control over financial reporting.
Fluctuations in exchange rates impact our business, financial condition and results of operations.
We hold assets, incur liabilities, earn revenues and pay expenses in a variety of currencies other than the U.S. dollar. Because our consolidated financial statements are presented in U.S. dollars, the financial statements of our subsidiaries outside the United States, where the functional currency is other than the U.S. dollar, are translated into U.S. dollars. Our operations outside of the United States, particularly in Mexico, Russia, Canada, the United Kingdom and Brazil, generate a significant portion of our net revenue. In addition, we purchase many of the ingredients, raw materials and commodities used in our business in numerous markets and in numerous currencies. Fluctuations in exchange rates, including as a result of currency controls or other currency exchange restrictions have had, and may continue to have, an adverse impact on our business, financial condition and results of operations.
Climate change, water scarcity or legal, regulatory or market measures to address climate change or water scarcity may negatively affect our business and operations or damage our reputation.
There is concern that carbon dioxide and other greenhouse gases in the atmosphere have an adverse impact on global temperatures, weather patterns and the frequency and severity of extreme weather and natural disasters. In the event that such climate change has a negative effect on agricultural productivity, we may be subject to decreased availability or less favorable pricing for certain commodities that are necessary for our products, such as sugar cane, corn, wheat, rice, oats, oranges and other fruits and potatoes. Natural disasters and extreme weather conditions, such as a hurricane, earthquake or flooding, may disrupt the productivity of our facilities or the operation of our supply chain and unfavorably impact the demand for, or our consumer’s ability to purchase, our products. The predicted effects of climate change may also exacerbate challenges regarding the availability and quality of water. As demand for water access continues to increase around the world, we may be subject to decreased availability of water, deteriorated quality of water or less favorable pricing for water, which could adversely impact our manufacturing and distribution operations.
Concern over climate change may result in new or increased regional, federal and/or global legal and regulatory requirements to reduce or mitigate the effects of greenhouse gases, or to limit or impose additional costs on commercial water use due to local water scarcity concerns. In the event that such regulation is more stringent than current regulatory obligations or the measures that we are currently undertaking to monitor and improve our energy efficiency and water conservation, we may experience disruptions in, or significant increases in our costs of, operation and delivery and we may be required to make additional investments in facilities and equipment or relocate our facilities. In particular, increasing regulation of fuel emissions could substantially increase the cost of energy, including fuel, required to operate our facilities or transport and distribute our products, thereby substantially increasing the distribution and supply chain costs associated with our products. As a result, the effects of climate change or water scarcity could negatively affect our business and operations.
In addition, any failure to achieve our goals with respect to reducing our impact on the environment or perception (whether or not valid) of our failure to act responsibly with respect to water use and the environment or to effectively respond to new, or changes in, legal or regulatory requirements concerning climate change or water scarcity could result in adverse publicity and could adversely affect our business, reputation, financial condition or results of operations.
There is also increased focus, including by governmental and non-governmental organizations, investors, customers and consumers on these and other environmental sustainability matters, including deforestation, land use, climate impact and water use. Our reputation could be damaged if we or others in our industry do not act, or are perceived not to act, responsibly with respect to our impact on the environment.
A portion of our workforce is represented by unions. Failure to successfully negotiate collective bargaining agreements, or strikes or work stoppages, could cause our business to suffer.
Many of our employees are covered by collective bargaining agreements, and other employees may seek to be covered by collective bargaining agreements. Strikes or work stoppages or other business interruptions could occur if we are unable to renew these agreements on satisfactory terms or enter into new agreements on satisfactory terms or if we are unable to otherwise manage changes in, or that affect, our workforce, which could impair manufacturing and distribution of our products or result in a loss of sales, which could adversely impact our business, financial condition or results of operations. The terms and conditions of existing, renegotiated or new collective bargaining agreements could also increase our costs or otherwise affect our ability to fully implement future operational changes to enhance our efficiency or to adapt to changing business needs or strategy.
If we are not able to adequately protect our intellectual property rights, or if we are found to infringe on the intellectual property rights of others, the value of our products or brands, or our competitive position, could be reduced, which could have an adverse impact on our business financial condition or results of operations.can be adversely affected.
We possess intellectual property rights that are important to our business. These intellectual property rights includebusiness, including ingredient formulas, trademarks, copyrights, patents, business processes and other trade secrets that are important to our businesssecrets. The laws of various jurisdictions in which we operate have differing levels of protection of intellectual property. Our competitive position and relate to a varietythe value of our products their packaging, the processes for their production and the designbrands can be reduced and operation of various equipment used in our businesses. We protect our intellectual property rights globally through a combination of trademark, copyright, patent and trade secret laws, third-party assignment and nondisclosure agreements and monitoring of third-party misuses of our intellectual property. Ifbusiness adversely affected if we fail to obtain or adequately protect our trademarks, copyrights, patents, business processes and trade secrets,intellectual property, including our ingredient formulas, or if there is a change in law that limits or removes the current legal protections ofafforded our intellectual property, the value of our products and brands, or our competitive position, could be reduced and there could be an adverse impact on our business, financial condition or results of operations. In addition, if,property. Also, in the course of developing new products or improving the quality of existing products, we are foundhave in the past been alleged to have infringed, and could in the future infringe or be alleged to infringe, on the intellectual property rights of others, directlyothers. Such infringement or indirectly, such findingallegations of infringement could have an adverse impact onresult in expensive litigation and damages, damage to our reputation, business, financial condition disruption to our operations, injunctions against development, manufacturing, use and/or resultssale of operations and may limitcertain products, inventory write-offs or other limitations on our ability to introduce new products or improve the quality of existing products.products, resulting in an adverse effect on our business.
Failure to comply with laws and regulations applicable to our business can adversely affect our business.
The conduct of our business is subject to numerous laws and regulations relating to the production, storage, distribution, sale, display, advertising, marketing, labeling, content (including whether a product contains genetically engineered ingredients), quality, safety, transportation, supply chain, traceability, sourcing (including pesticide use), packaging, disposal, recycling and use of our products or raw materials, employment and occupational health and safety, environmental, social and governance matters and reporting (including climate change), machine learning and artificial intelligence and data privacy and
protection. In addition, in many jurisdictions, compliance with competition and antitrust laws is of special importance to us due to our competitive position, as is compliance with anti-corruption laws. The imposition of new laws, changes in laws or regulatory requirements or changing interpretations thereof, changes in the enforcement priorities of regulators, and differing or competing regulations and standards across the markets where our products or raw materials are made, manufactured, distributed or sold, have in the past and could continue to result in higher compliance costs, capital expenditures and higher production costs, or make it necessary for us to reformulate certain of our products, resulting in adverse effects on our business. For example, increasing governmental and societal attention to environmental, social and governance matters has resulted and could continue to result in new laws or regulatory requirements, including expanded disclosure requirements that are expected to continue to expand the nature, scope and complexity of matters on which we are required to report. In addition, the entry into new markets or categories has resulted in and could continue to result in our business being subject to additional regulations resulting in higher compliance costs. If one jurisdiction imposes or proposes to impose new laws or regulations that impact the manufacture, distribution or sale of our products, other jurisdictions may follow. Failure to comply with such laws or regulations (or allegations thereof) can subject us to criminal or civil investigations or enforcement actions, including voluntary and involuntary document requests, fines, injunctions, product recalls, penalties, disgorgement of profits or activity restrictions, all of which can adversely affect our business. In addition, the results of third-party studies (whether or not scientifically valid) purporting to assess the health implications of consumption of certain ingredients or substances present in certain of our products or packaging materials have resulted in and could continue to result in our being subject to new taxes and regulations or lawsuits that can adversely affect our business.
Potential liabilities and costs from litigation, claims, legal or regulatory proceedings, inquiries or investigations couldcan have an adverse impact on our business, financial condition or results of operations.business.
We and our subsidiaries are party to a variety of litigation, claims, legal or regulatory proceedings, inquiries and investigations, including but not limited to matters related to our advertising, marketing or commercial practices, product labels, claims and ingredients, including sugar, sodiumpersonal injury and saturated fat, ourproperty damage, intellectual property rights, alleged infringement or misappropriation by us of intellectual property rights of others, environmental, privacy, employment, tax and insurance matters, environmental, social and governance matters, including concerns or perceptions regarding our packaging and its environmental impact, and matters relating to our compliance with applicable laws and regulations. We evaluate such matters to assess the likelihood of unfavorable outcomes and estimate, if possible, the amount of potential losses and establish reserves as appropriate. These matters are inherently uncertain and there is no guarantee that we will be successful in defending ourselves in these matters, or that our assessment of the materiality of these matters and the likely outcome or potential losses and established reserves will be consistent with the ultimate outcome of such matters. In the event that management’s assessment of actual or potential claims and proceedings proves inaccurate or litigation, claims, proceedings, inquiries or investigations that are material arise in the future, there may be a material adverse effect on our business, financial condition or results of operations. Responding to litigation, claims,
proceedings, inquiries, and investigations,these matters, even those that are ultimately non-meritorious, may also requirerequires us to incur significant expense and devote significant resources, and may generate adverse publicity that may damagedamages our reputation or brand image, which could have an adverse impact on our business, financial condition or resultsimage. Any of operations.
Many factors maythe foregoing can adversely affect the price of our publicly traded securities.business.
Many factors may adversely affect the price of our common stock and publicly traded debt. Such factors, some of which are beyond our control, may include, but are not limited to: unfavorable economic conditions; changes in financial or tax reporting and changes in accounting principles or practices that materially affect our reported financial condition and results; investor perceptions of our business, strategies and performance or those of our competitors; actions by shareholders or others seeking to influence our business strategies; speculation by the media or investment community regarding our business, strategies and performance or those of our competitors; developments relating to pending litigation, claims, investigations or inquiries; trading activity in our securities or trading activity in derivative instruments with respect to our securities; changes in our credit ratings; the impact of our share repurchase programs or dividend policy; and the outcome of referenda and elections. In addition, corporate actions, such as those we may or may not take from time to time as part of our continuous review of our corporate structure and our strategy, including as a result of business, legal, regulatory and tax considerations, may not have the impact we intend and may adversely affect the price of our securities. The above factors, as well as the other risks included in this “Item 1A. Risk Factors,” could adversely affect the price of our securities.
Item 1B. Unresolved Staff Comments.
We have received no written comments regarding our periodic or current reports from the staff of the SEC that were issued 180 days or more preceding the end of our 20172023 fiscal year and that remain unresolved.
Item 1C. Cybersecurity.
Cybersecurity Risk Management and Strategy
We are regularly subject to cyberattacks and other cyber incidents. In response, we have implemented cybersecurity processes, technologies, and controls to aid in our efforts to assess, identify, and manage cybersecurity risks. Our enterprise risk management framework considers cybersecurity risk alongside other company risks as part of our overall risk assessment process. Our enterprise risk management team collaborates with our Information Security function, led by the Company’s Chief Strategy and
Transformation Officer and the Company’s Chief Information Security Officer, to gather insights for identifying, assessing and managing cybersecurity threat risks, their severity, and potential mitigations.
We assess PepsiCo’s Information Security program using an industry-leading cybersecurity framework from the National Institute of Standards and Technology. To help assess and identify our cybersecurity risks, we maintain internal resources to perform penetration testing designed to simulate evolving tactics and techniques of real-world threat actors, engage with industry partners and law enforcement and intelligence communities and conduct tabletop exercises and periodic risk interviews across our business. We also engage an independent third party to perform internal and external penetration testing of PepsiCo’s environment periodically and engage other third parties to periodically conduct assessments of our cybersecurity capabilities. In addition, we continue to expand training and awareness practices to mitigate human risk, including mandatory computer-based training, internal communications, and regular phishing awareness campaigns that are designed to emulate real-world contemporary threats and provide immediate feedback (and, if necessary, additional training or remedial action) to employees.
Our processes also address cybersecurity risks associated with our use of third-party service providers including suppliers, software and cloud-based service providers. We proactively evaluate the cybersecurity risk of a third party by utilizing a repository of risk assessments, external monitoring sources, threat intelligence and predictive analytics to better inform PepsiCo during contracting and vendor selection processes. Additionally, when third party risks are identified, we require those third parties to agree by contract to implement appropriate security controls. Security issues are documented and tracked and periodic monitoring is conducted for third parties in order to mitigate risk.
In addition to the processes, technologies, and controls that we have in place to reduce the likelihood of a successful material cyberattack, the Company has established well-defined response procedures to address cyber events that do occur. The program provides for the coordination of various corporate functions and governance groups and serves as a framework for the execution of responsibilities across businesses and operational roles. Our incident response plan coordinates the activities we take to prepare for, detect, respond to and recover from cybersecurity incidents, which include processes to triage, assess severity for, escalate, contain, investigate, and remediate the incident, as well as to assess for potential disclosure, comply with potentially applicable legal obligations and mitigate brand and reputational damage. We also maintain insurance coverage that, subject to its terms and conditions, is intended to address costs associated with certain aspects of cyber incidents and information systems failures.
Based on the information we have as of the date of this Form 10-K, we do not believe any risks from cybersecurity threats, including as a result of any previous cybersecurity incidents, have materially affected or are reasonably likely to materially affect us, including our business strategy, results of operations or financial condition. See “Item 1A. Risk Factors” for further information about these risks.
Cybersecurity Governance
Cybersecurity is an important part of our risk management processes and an area of focus for our Board and management. Given that cybersecurity risks can impact various areas of responsibility of the Committees of the Board, the Board believes it is useful and effective for the full Board to maintain direct oversight over cybersecurity matters. In 2021, the Board amended our Corporate Governance Guidelines to specifically mention cybersecurity as an area of Board oversight to reflect this existing practice. The Board receives and provides feedback on regular updates from management, including from the Company’s Chief Strategy and Transformation Officer and the Company’s Chief Information Security Officer, regarding cybersecurity governance processes, the status of projects to strengthen internal cybersecurity, results from third-party assessments, and also discusses any significant cyber incidents, including recent incidents at other companies and the emerging threat landscape.
Our cybersecurity risk management and strategy processes, which are discussed in greater detail above, are led by the Company’s Chief Strategy and Transformation Officer and the Company’s Chief Information Security Officer. Such individuals have significant prior work experience in various roles across multiple industries involving managing information security, developing cybersecurity strategy, implementing effective information and cybersecurity programs and managing compliance environments.
These members of management are informed about and monitor the prevention, mitigation, detection, and remediation of cybersecurity incidents through their management of, and participation in, the cybersecurity risk management and strategy processes described above, including the operation of our incident response plan.
Item 2. Properties.
Our principal executive officesoffice located in Purchase, New York and our facilities located in Plano, Texas, all of which we own, are our most significant corporate properties.
Each division utilizes plants, warehouses, distribution centers, storage facilities, offices and other facilities, either owned or leased, inIn connection with making, marketing, distributing and selling our products. The approximate number of such facilities utilized byproducts, each division is as follows:utilizes manufacturing, processing, bottling and production plants, warehouses, distribution centers, storage facilities, offices, including division headquarters, research and development facilities and other facilities, all of which are either owned or leased.
|
| | | | | | | | | | | | | |
| | FLNA | | QFNA | | NAB | | Latin America | | ESSA | | AMENA | | Shared(a) |
Plants (b) | 35 | | 5 | | 65 | | 50 | | 85 | | 50 | | 5 |
Other Facilities (c) | 1,680 | | 3 | | 440 | | 585 | | 340 | | 345 | | 40 |
| |
(a) | Shared properties are in addition to the other properties reported by our six divisions identified in this table. |
| |
(b) | Includes manufacturing and processing plants as well as bottling and production plants. |
| |
(c) | Includes warehouses, distribution centers, storage facilities, offices, including division headquarters, research and development facilities and other facilities. |
Significant properties by division included in the table above are as follows:
FLNA’s research and development facility in | | | | | | | | | | | | | | | | | |
| Property Type | | Location | | Owned/ Leased |
| FLNA | Research and development facility | | Plano, Texas | | Owned |
| QFNA | Convenient food plant | | Cedar Rapids, Iowa | | Owned |
| PBNA | Research and development facility | | Valhalla, New York | | Owned |
| PBNA | Concentrate plant | | Arlington, Texas | | Owned |
| LatAm | Convenient food plant | | Celaya, Mexico | | Owned |
| LatAm | Two convenient food plants | | Vallejo, Mexico | | Owned |
| Europe | Convenient food plant | | Leicester, United Kingdom | | Owned (a) |
| Europe | Convenient food plant | | Kashira, Russia | | Owned |
| Europe | Manufacturing plant | | Lehavim, Israel | | Owned |
| Europe | Dairy plant | | Moscow, Russia | | Owned |
| AMESA | Convenient food plant | | Riyadh, Saudi Arabia | | Owned (a) |
| APAC | Convenient food plant | | Shanghai, China | | Owned (a) |
| FLNA, QFNA, PBNA, LatAm, Corporate | Shared service center | | Mexico City, Mexico | | Leased |
| PBNA, LatAm | Concentrate plant | | Colonia, Uruguay | | Owned (a) |
| PBNA, Europe, AMESA | Two concentrate plants | | Cork, Ireland | | Owned |
| PBNA, AMESA, APAC | Concentrate plant | | Singapore | | Owned (a) |
| All divisions | Shared service center | | Hyderabad, India | | Leased |
(a)The land on which is owned.
QFNA’s food plant in Cedar Rapids, Iowa, which is owned.
NAB’s research and development facility in Valhalla, New York, and a Tropicana plant in Bradenton, Florida, both of whichthese properties are owned.
Latin America’s three snack plants in Mexico (one in Vallejo, one in Celaya and one in Monterrey) and one in Brazil (Sorocaba), all of which are owned.
ESSA’s snack plant in Leicester, United Kingdom, which is leased; its snack plant in Kashira, Russia, its fruit juice plant in Zeebrugge, Belgium, its beverage plant in Lebedyan, Russia and its dairy plant in Moscow, Russia, all of which are owned.
AMENA’s beverage plants in Tanta City, Egypt and Rayong, Thailand, and its snack plant in Sixth of October City, Egypt, all of which are owned; and its snack plant in Riyadh, Saudi Arabia, whichlocated is leased.
Two concentrate plants in Cork, Ireland, which are shared by our NAB, ESSA and AMENA divisions, both of which are owned.
Shared service centers in Winston-Salem, North Carolina, and Plano, Texas, which are primarily shared by our FLNA, QFNA and NAB divisions, both of which are leased.
Most of our plants are owned or leased on a long-term basis. In addition to company-owned or leased properties described above, we also utilize a highly distributed network of plants, warehouses and distribution centers that are owned or leased by our contract manufacturers, co-packers, strategic alliances or joint ventures in which we have an equity interest. We believe that our properties generally are in good operating condition and, taken as a whole, are suitable, adequate and of sufficient capacity for our current operations.
Item 3. Legal Proceedings.
As previously disclosed, in January 2011, Wojewodzka Inspekcja Ochrony Srodowiska,On November 15, 2023, the Polish environmental control authority, began an audit of a bottling plant of our subsidiary, Pepsi-Cola General Bottlers Poland SP, z.o.o. (PCGB), in Michrow, Poland. In July 2013, Wojewodzka Inspekcja Ochrony Srodowiska alleged that the plant was not in compliance in 2009 with applicable regulations governing the taking of water samples for analysisPeople of the plant’s wasteState of New York filed a lawsuit against PepsiCo, Inc., Frito-Lay, Inc. and sought monetary sanctions of $650,000 and, in August 2013, PCGB appealed this decision. In April 2015, the General Environmental InspectorFrito-Lay North America, Inc. (the NYS Matter) asserting claims for Environmental Protection upheld the sanctions against PCGB and, in May 2015, PCGB further appealed this decision. In October 2015, Viovodeship Administrative Court in Warsaw rejected our appeal and, in December 2015, PCGB filed an extraordinary appealpublic nuisance, deceptive acts or practices in the conduct of business, and failure to warn that our packaging was a potential source of plastic pollution, allegedly resulting in plastic pollution in the Buffalo River. This matter is pending in the Commercial Division of the New York State Supreme Administrative Court. In October 2017,Court – Erie County. The lawsuit does not specify the Supreme Administrative Court issued a final, non-appealable decision, rejecting our appealamount of damages sought and we agreedbelieve we have strong defenses to invest funds up to the penalty amount(s) into the bottling plant to fully resolve the matter.
each of these claims. In addition, we and our subsidiaries are party to a variety of litigation, claims, legal or regulatory proceedings, inquiries and investigations. While the results of the NYS Matter and each such other litigation, claims,claim, legal or regulatory proceedings, inquiriesproceeding, inquiry and investigationsinvestigation cannot be predicted with certainty, management believes that the final outcome of the foregoing will not have a material adverse effect on our financial condition, results of operations or cash flows. Sanctions imposed by foreign authorities are levied in local currency and disclosed using the U.S. dollar equivalent at the time of imposition and are subject to currency fluctuations. See also “Item 1. Business – Regulatory Matters” and “Item 1A. Risk Factors.”
Item 4. Mine Safety Disclosures.
Not applicable.
Information About Our Executive Officers of the Registrant
The following is a list of names, ages and backgrounds of our current executive officers:
| | | | | | | | | | | | | | |
| Name | | Age | | Title |
| James T. Caulfield | | 64 | |
Name | Age | Title |
Albert P. Carey | 66 | Chief Executive Officer, North America |
Sanjeev Chadha | 58 | Chairman, Asia, Middle East and North Africa |
Ruth Fattori | 65 | Executive Vice President, Human Resources and Chief Human Resources Officer, PepsiCo |
Marie T. Gallagher | 58 | Senior Vice President and Controller, PepsiCo |
Hugh F. Johnston | 56 | Vice Chairman, PepsiCo; Executive Vice President and Chief Financial Officer, PepsiCo |
Dr. Mehmood KhanDavid J. Flavell | | 5952 | | Vice Chairman, PepsiCo; Executive Vice President, PepsiCo Chief Scientific Officer, Global ResearchGeneral Counsel and DevelopmentCorporate Secretary, PepsiCo |
Ramon LaguartaMarie T. Gallagher | | 5464 | | Senior Vice President and Controller, PepsiCo |
Laxman NarasimhanRam Krishnan | | 5053 | | Chief Executive Officer, LatinPepsiCo Beverages North America and Europe Sub-Saharan Africa |
Indra K. NooyiRamon L. Laguarta | | 6260 | | Chairman of the Board of Directors and Chief Executive Officer, PepsiCo |
| Silviu Popovici | | 5056 | | President,Chief Executive Officer, Europe Sub-Saharan Africa |
Vivek SankaranPaula Santilli | | 5559 | | Chief Executive Officer, Latin America |
| Becky Schmitt | | 50 | | Executive Vice President and Chief OperatingHuman Resources Officer, Frito-Lay North AmericaPepsiCo |
Mike SpanosEugene Willemsen | | 5356 | | Chief Executive Officer, Asia,Africa, Middle East, South Asia and North AfricaInternational Beverages |
Kirk TannerSteven Williams | | 4958 | | President and Chief OperatingExecutive Officer, PepsiCo Foods North America Beverages |
David Yawman | 49 | Executive Vice President, Government Affairs, General Counsel and Corporate Secretary, PepsiCo |
Albert P. Carey, 66, was appointed Chief Executive Officer, North America, effective April 2016. Mr. Carey previouslyJames T. Caulfield has served as Chief Executive Officer, North America Beverages from July 2015 to April 2016, as Chief Executive Officer, PepsiCo Americas Beverages from 2011 to July 2015 and asVice President and Chief ExecutiveFinancial Officer, of Frito-Lay North America from 2006 to 2011. Mr. Carey began his career with Frito-Lay in 1981 where he spent 20 years in a variety of roles. He served as President, PepsiCo, Sales from 2003 until 2006.since November 2023. Prior to that, he served as Senior Vice President and Chief OperatingFinancial Officer, PepsiCo Beverages and Foods North America from 20022019 to 2003 andNovember 2023, as PepsiCo’s Senior Vice President, SalesInvestor Relations from 2010 to 2019, as Senior Vice President and Retailer StrategiesChief Financial Officer, PepsiCo Beverages Canada from 19982010 to 2002.2011, as Vice President, Corporate Strategy and Development from 2007 to 2010, Vice President, Investor Relations from 2005 to 2007 and as Vice President, Financial Planning and Analysis from 2000 to 2005. He also held a variety of senior finance roles in Frito-Lay North America from 1995 to 2000 and was Director, Corporate Audit from 1993 to 1995. Prior to joining PepsiCo in 1993, Mr. Caulfield was a partner at the accounting firm Coopers & Lybrand.
Sanjeev Chadha, 58, was appointed Chairman, Asia, Middle East and North Africa, effective January 2018. Mr. Chadha previouslyDavid J. Flavell has served as Executive Vice President, General Counsel and Corporate Secretary, PepsiCo since 2021. Mr. Flavell previously held a number of leadership roles at PepsiCo, including as Senior Vice President, Deputy General Counsel and Chief ExecutiveCompliance & Ethics Officer Asia, Middle Eastfor PepsiCo from 2019 to 2021, as Senior Vice President, Deputy General Counsel & Managing Attorney from 2018 to 2019, as Senior Vice President, Deputy General Counsel & General Counsel, International and Global
Groups from 2017 to 2018, as Senior Vice President, Deputy General Counsel & General Counsel, Latin America and Frito-Lay North AfricaAmerica from July2016 to 2017, as Senior Vice President, General Counsel, Latin America and Frito-Lay North America from 2015 to January 2018,2016, and as Chief Executive Officer, PepsiCoSenior Vice President, General Counsel, Asia, Middle East and Africa from 20132011 to July 2015, as President of PepsiCo’s2015. Before joining PepsiCo in 2011, Mr. Flavell was general counsel for Danone S.A.’s Asia Pacific and Middle East and Africa region from 2011business. Prior to 2013 and as President of PepsiCo’s India region from 2009 to 2010.that, Mr. Chadha joined PepsiCo in 1989 and has held a variety of senior positions with the Company. HeFlavell served as Senior Vice President - Commercial, Asia Pacific, including Chinasenior legal counsel at Fonterra Co-operative Group Limited and India, Senior General Manager, Vietnam and the Philippines, and held other leadership roles in sales, marketing, innovation and franchise.was a partner at Corrs Chambers Westgarth.
Ruth Fattori,65, was appointed Executive Vice President, Human Resources and Chief Human Resources Officer, PepsiCo effective October 2017. Ms. Fattori previously served as PepsiCo’s Senior Vice President, Talent Management, Training and Development from February 2013 until October 2017. Prior to joining PepsiCo, Ms. Fattori was managing partner of Pecksland Partners, LLC from 2009 to February 2013. From 2008 to 2009, Ms. Fattori served as Executive Vice President and Chief Administrative Officer for MetLife, Inc. From 2004 to 2008, Ms. Fattori served as Executive Vice President of Human Resources at Motorola, Inc. and, prior to that, held senior human resources positions at JPMorgan Chase & Co. and Siemens Corporation.
Marie T. Gallagher, 58, was appointed PepsiCo’s Senior Vice President and Controller in May 2011. Ms. Gallagher joined PepsiCo in 2005 as Vice President and Assistant Controller. Prior to joining PepsiCo, Ms. Gallagher was Assistant Controller at Altria Corporate Services from 1992 to 2005 and, prior to that, a senior manager at Coopers & Lybrand.
Hugh F. Johnston, 56,Ram Krishnan was appointed Vice Chairman,Chief Executive Officer, PepsiCo in July 2015Beverages North America, effective February 2024. Prior to that, Mr. Krishnan served as Chief Executive Officer, International Beverages and Chief Commercial Officer of PepsiCo from 2022 to February 2024, as Executive Vice President and Chief FinancialCommercial Officer, PepsiCo, in March 2010. Mr. Johnston assumed responsibility for the Company’s global e-commerce businessfrom 2019 to 2021, as President and the Company’s global businessChief Executive Officer of PepsiCo’s Asia Pacific, Australia and information solutions function in July 2015. He previously held responsibility for the Quaker Foods North America divisionNew Zealand and China Region from 20142018 to 2016, the position of Executive Vice President, Global Operations from 2009 to 20102020, and the position of President of Pepsi-Cola North America from 2007 to 2009. He was formerly PepsiCo’s Executive Vice President, Operations, a position he held from 2006 until 2007. From 2005 until 2006, Mr. Johnston wasas PepsiCo’s Senior Vice President Transformation. Priorand Chief Customer Officer for Walmart, leading PepsiCo’s global Walmart customer team, from 2016 to that, he served2017. Mr. Krishnan joined PepsiCo in 2006 and held marketing roles of increasing responsibility from 2006 to 2016, including as Senior Vice President and Chief FinancialMarketing Officer, of PepsiCo Beverages and FoodsFrito-Lay North America from 2002 through 2005, and2014 to 2016, as PepsiCo’s Senior Vice President, of MergersMarketing, Frito-Lay North America from 2012 to 2013 and Acquisitions in 2002. Mr. Johnston joined PepsiCo in 1987 as a Business Planner and held various finance positions until 1999 when he left to join Merck & Co., Inc. as Vice President Retail, a position which he held until he rejoined PepsiCo in 2002.of Global Brands, Frito-Lay North America from 2011 to 2012. Prior to joining PepsiCo, Mr. Krishnan spent six years at General Motors Company as a marketing manager for Cadillac.
Ramon L. Laguarta has served as PepsiCo’s Chief Executive Officer and a director on the Board since 2018, and assumed the role of Chairman of the Board in 1987,2019. Mr. Johnston was with General Electric Company inLaguarta previously served as President of PepsiCo from 2017 to 2018. Prior to serving as President, Mr. Laguarta held a variety of finance positions.
Dr. Mehmood Khan, 59, was appointed Vice Chairman, PepsiCo in February 2015 and Executive Vice President, PepsiCo Chief Scientific Officer, Global Research and Development in May 2012. He previously held the position of Chief Executive Officer of PepsiCo’s Global Nutrition Group from 2010 to May 2012 and the position of PepsiCo’s Chief Scientific Officer from 2008 to May 2012. Prior to joining PepsiCo, Dr. Khan served for five years at Takeda Pharmaceuticals in various leadership roles including President of Research and Development and Chief Medical Officer. Dr. Khan also served at the Mayo Clinic from 2001 until 2003 as the director of the Diabetes, Endocrinology and Nutrition Clinical Unit and as Consultant Physician in Endocrinology.
Ramon Laguarta, 54, was appointed President, PepsiCo in September 2017. He previously held the positions of Chief Executive Officer,increasing responsibility in Europe, Sub-Saharan Africa from July 2015 to September 2017, Chief Executive Officer, PepsiCo Europe from January 2015 to July 2015, President, Developing & Emerging Markets, PepsiCo Europe from 2012 to January 2015 and President, PepsiCo Eastern Europe Region from 2008 to 2012. Mr. Laguarta joined PepsiCo in 1996 as a marketing vice president for Spain Snacks and served in a variety of positions, including as Commercial Vice President of PepsiCo Europe from 2006 to 2008, PepsiCo Eastern Europe Region from 2008 to 2012, President, Developing & Emerging Markets, PepsiCo Europe from 2012 to 2015, Chief Executive Officer, PepsiCo Europe in 2015, and Chief Executive Officer, Europe Sub-Saharan Africa from 2015 until 2017. From 2002 to 2006, he was General Manager for Iberia Snacks and Juices, and from 20021999 to 2006 and2001, a General Manager for Greece Snacks from 1999 to 2001.Snacks. Prior to joining PepsiCo in 1996 as a marketing vice president for Spain Snacks, Mr. Laguarta worked for Chupa Chups, S.A., where he worked in several international assignments in Asia, Europe, Asia,the Middle East and the United States.
Laxman Narasimhan, 50, was appointed Chief Executive Officer, Latin America and Europe Sub-Saharan Africa in September 2017. He previously held the positions of Chief Executive Officer, Latin America from 2015 to September 2017, Chief Executive Officer, PepsiCo Latin America Foods from 2014 to July 2015 and Senior Vice President and Chief Financial Officer of PepsiCo Americas Foods, a business unit that had previously included the Company’s Frito-Lay North America, Quaker Foods North America and Latin America Foods divisions, from 2012 to 2014. Prior to joining PepsiCo in 2012, Mr. Narasimhan spent 19 years at McKinsey & Company, where he served in various positions, including as a director and location manager of the New Delhi office and co-leader of the global consumer and shopper insights practice.
Indra K. Nooyi, 62, has been PepsiCo’s Chief Executive Officer since 2006 and assumed the role of Chairman of PepsiCo’s Board of Directors in 2007. She was elected to PepsiCo’s Board of Directors and became President and Chief Financial Officer in 2001, after serving as Senior Vice President and Chief Financial Officer since 2000. Ms. Nooyi also served as PepsiCo’s Senior Vice President, Corporate Strategy and
Development from 1996 until 2000, and as PepsiCo’s Senior Vice President, Strategic Planning from 1994 until 1996. Prior to joining PepsiCo, Ms. Nooyi spent four years as Senior Vice President of Strategy, Planning and Strategic Marketing for Asea Brown Boveri, Inc. She was also Vice President and Director of Corporate Strategy and Planning at Motorola, Inc. Ms. NooyiLaguarta has served as a director of Schlumberger Ltd.Visa Inc. since 2015.2019.
Silviu Popovici, 50, was appointed Chief Executive Officer, Europe, effective 2019. Prior to this role, he served as Chief Executive Officer, Europe Sub-Saharan Africa in 2019 and as President, Europe Sub-Saharan Africa effective September 2017.from 2017 to early 2019. Mr. Popovici previously served as President, Russia, Ukraine and CIS (The Commonwealth of Independent States) from August 2015 to September 2017, and as President, PepsiCo Russia from January 2013 to July 2015. Mr. Popovici joined PepsiCo in 2011 following PepsiCo’s acquisition of Wimm-Bill-Dann Foods OJSC (WBD) and served as General Manager, WBD Foods Division from February 2011 until December 2012. Prior to the acquisition, Mr. Popovici held senior leadership roles at WBD, running its dairy business from 2008 to 2011 and its beverages business from 2006 to 2008.
Vivek Sankaran, 55,Paula Santilli was appointed President and Chief OperatingExecutive Officer, Frito-Lay NorthLatin America, effective April 2016. Prior2019. Previously, she served in various leadership positions at PepsiCo Mexico Foods, as President from 2017 to that, Mr. Sankaran served2019, as Chief Operating Officer Frito-Lay North America from February 2016 to April 2016;2017 and as Vice President and General Manager from 2011 to 2016. Prior to joining PepsiCo Mexico Foods, she held a variety of roles, including leadership positions in Beverages in Mexico, as well as in Foods and Snacks in the Latin America Southern Cone region
comprising Argentina, Uruguay and Paraguay. Ms. Santilli joined PepsiCo in 2001 following PepsiCo’s acquisition of the Quaker Oats Company. At Quaker, she held various roles of increasing responsibility from 1992 to 2001, including running the regional Quaker Foods and Gatorade businesses in Argentina, Chile and Uruguay.
Becky Schmitt was appointed Executive Vice President and Chief CommercialHuman Resources Officer, North AmericaPepsiCo, in June 2023. Prior to that, Ms. Schmitt served as executive vice president, chief people officer of Cognizant Technology Solutions Corp. from 2020 to 2023. Prior to joining Cognizant, Ms. Schmitt served in various executive human resources roles at Walmart, Inc., including as senior vice president, chief people officer of Sam’s Club, a division of Walmart, from 2018 to 2020, senior vice president, chief people officer of U.S. eCommerce and corporate functions from late 2016 to 2018, and vice president, human resources – technology from early 2016 to late 2016. Prior to joining Walmart, Ms. Schmitt spent over 20 years with Accenture plc in multiple senior human resources roles globally.
Eugene Willemsen was appointed Chief Executive Officer, Africa, Middle East, South Asia and International Beverages, effective February 2024. Previously he served as Chief Executive Officer, Africa, Middle East, South Asia from 2019 to February 2024, as Chief Executive Officer, Sub-Saharan Africa in 2019 and as Executive Vice President, Global Categories and Franchise Management from 2015 to 2019. Before that, he led the global Pepsi-Lipton Joint Venture as President from 2014 to February 2016; Chief Customer Officer for Frito-Lay North America from 20122015. Prior to 2014;such role, Mr. Willemsen served as PepsiCo’s Senior Vice President and General Manager, Frito-Lay North America’s south business unitSouth East Europe from 2011 to 2012; and Senior Vice President, Corporate Strategy and Development from 2009 to 2010. Prior to joining PepsiCo in 2009, Mr. Sankaran was a partner at McKinsey & Company, where he advised Fortune 100 companies with a focus on retail and high tech and co-led the North America purchasing and supply management practice.
Mike Spanos,53, was appointed Chief Executive Officer, Asia, Middle East and North Africa, effective January 2018. Mr. Spanos previously served as interim head of PepsiCo’s Asia, Middle East and North Africa division from October 2017 to January 2018 and as President and Chief Executive Officer, PepsiCo Greater China Region, from September 2014 to January 2018. Prior to that, Mr. Spanos served as Senior Vice President and Chief Customer Officer, PepsiCo North America Beverages from October 2011 to September 2014,2013, as Senior Vice President and General Manager, PepsiCo Beverages Company’s west business unit from March 2011 to October 2011 and as Senior Vice President, Retail Sales and Execution, PepsiCo Beverages Company from March 2010 to March 2011. Mr. Spanos joined PepsiCo in 1993 as a territory sales manager and unit manager in the Philadelphia market unit and served in various other leadership roles through March 2010. Prior to joining PepsiCo, Mr. Spanos served in the United States Marines Corps from 1987 to 1993, and with Tallahassee Medical Company as a sales representative in 1993.
Kirk Tanner, 49, was appointed President and Chief Operating Officer, North America Beverages, effective April 2016. Prior to that, Mr. Tanner served as Chief Operating Officer, North America Beverages and President, Global Foodservice from December 2015 to April 2016 and President, Global Foodservice from 2014 to December 2015. Mr. Tanner joined PepsiCo in 1992, where he has worked in numerous domestic and international locations and in a variety of roles, including senior vice president of Frito-Lay North America’s west region from 2009 to 2013; vice president, sales of PepsiCo UK and IrelandCommercial, Europe from 2008 to 2009; region vice president, Frito-Lay North America’s Mountain region from 2005 to 2008; region vice president, Frito-Lay North America’s Mid-America region from 2002 to 2005; and region vice president, Frito-Lay North America’s California region from 2000 to 2002.
David Yawman,49, was appointed Executive Vice President, Government Affairs, General Counsel and Corporate Secretary, PepsiCo effective October 2017. Prior to that, Mr. Yawman served2011, as Senior Vice President and Deputy General CounselManager, Northern Europe from 2006 to 2008, as Vice President, General Manager, Benelux from 2000 to 2005 and as Commercial Director, Benelux for the snacks business from 1998 to 2000. Mr. Willemsen joined PepsiCo and General Counsel forin 1995 as a business development manager.
Steven Williams was appointed Chief Executive Officer, PepsiCo Foods North America, and Corporate from July 2017effective 2019. Prior to October 2017. He previouslythis role, Mr. Williams served in leadership positions for Frito-Lay’s U.S. operations, as Senior Vice President, PepsiCo DeputyCommercial Sales and Chief Commercial Officer from 2017 to 2019 and as General Counsel, General Counsel, North America BeveragesManager and Quaker Foods North America from July 2015 to July 2017, as Senior Vice President, PepsiCo Deputy General Counsel, General Counsel, PepsiCo America BeveragesEast Division from April 20142016 to July 2015, as Senior Vice President, PepsiCo Chief Compliance and Ethics
Officer from March 2012 to April 2014 and as Senior Vice President, General Counsel, Pepsi Beverages Company from February 2010 to March 2012.2017. Prior to that, he spent five years in the law department of The Pepsi Bottling Group, Inc. (PBG)served as General Manager and priorSenior Vice President, Customer Management for PepsiCo’s global Walmart business from 2013 to that, was a member of PepsiCo’s corporate law department2016, as Sales Senior Vice President, North American Nutrition from the time he2011 to 2013 and as Vice President, Sales, Central Division from 2009 to 2011. Mr. Williams joined PepsiCo in 1998 until 2003.2001 as a part of PepsiCo’s acquisition of the Quaker Oats Company, which he joined in 1997 and has held leadership positions of increasing responsibility in sales and customer management.
Executive officers are elected by our Board, of Directors, and their terms of office continue until the next annual meeting of the Board or until their successors are elected and have qualified. There are no family relationships among our executive officers.
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
Stock Trading Symbol – PEPPEP.
Stock Exchange Listings – Since December 20, 2017, our common stock has traded on The Nasdaq Global Select Market. Before December 20, 2017,Market is the principal market for our common stock, traded on The New York Stock Exchange. Our common stockwhich is also listed on the Chicago Stock Exchange and SIX Swiss Exchange.
Stock Prices – The quarterly composite high and low sales prices for PepsiCo common stock for each fiscal quarter of 2017 and 2016 as reported on The New York Stock Exchange through December 19, 2017 and The Nasdaq Global Select Market from December 20, 2017 through December 30, 2017, are contained in “Item 6. Selected Financial Data.”
Shareholders – As of February 6, 2018,2, 2024, there were approximately 120,15694,999 shareholders of record of our common stock.
Dividends – We have paid consecutive quarterly cash dividends since 1965. The declaration and payment of future dividends are at the discretion of the Board of Directors.Board. Dividends are usually declared in February, May, July and November and paid at the end of March, June and September and the beginning of January. On February 5, 2018,7, 2024, the Board of Directors declared a quarterly dividend of $0.805$1.265 per share payable March 30, 2018,April 1, 2024, to shareholders of record on March 2, 2018.1, 2024. For the remainder of 2018,2024, the dividend record dates for these dividend payments are expected to be June 1,7, September 76 and December 7, 2018,6, 2024, subject to the approval of the BoardBoard. On February 9, 2024, we announced a 7% increase in our annualized dividend to $5.42 per share from $5.06 per share, effective with the dividend expected to be paid in June 2024. We expect to return a total of Directors. Information with respectapproximately $8.2 billion to the quarterlyshareholders in 2024, comprising dividends declared in 2017of approximately $7.2 billion and 2016 is contained in “Item 6. Selected Financial Data.”share repurchases of approximately $1.0 billion.
For information on securities authorized for issuance under our equity compensation plans, see “Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.”
A summary of our common stock repurchases (in millions, except average price per share) during the fourth quarter of 20172023 is set forth in the table below.
Issuer Purchases of Common Stock
| | | | | | | | | | | | | | | | | | | | | | | |
| Period | Total Number of Shares Repurchased(a) | | Average
Price Paid
Per Share | | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | | Maximum Number (or Approximate Dollar Value) of Shares that May Yet Be Purchased Under the Plans or Programs |
| 9/9/2023 | | | | | | | $ | 7,741 | |
| 9/10/2023-10/7/2023 | 0.6 | | | $ | 174.26 | | | 0.6 | | | (105) | |
| | | | | | | 7,636 | |
| 10/8/2023-11/4/2023 | 0.3 | | | $ | 162.20 | | | 0.3 | | | (47) | |
| | | | | | | 7,589 | |
| 11/5/2023-12/2/2023 | 0.3 | | | $ | 167.35 | | | 0.3 | | | (54) | |
| | | | | | | 7,535 | |
| 12/3/2023-12/30/2023 | 0.2 | | | $ | 168.08 | | | 0.2 | | | (35) | |
| Total | 1.4 | | | $ | 169.31 | | | 1.4 | | | $ | 7,500 | |
(a)All shares were repurchased in open market transactions pursuant to the $10 billion repurchase program authorized by our Board and publicly announced on February 10, 2022, which commenced on February 11, 2022 and will expire on February 28, 2026. Shares repurchased under this program may be repurchased in open market transactions, in privately negotiated transactions, in accelerated stock repurchase transactions or otherwise.
|
| | | | | | | | | | | | | |
| Period | Total Number of Shares Repurchased(a) | | Average Price Paid Per Share | | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | | Maximum Number (or Approximate Dollar Value) of Shares that May Yet Be Purchased Under the Plans or Programs(b) |
| 9/9/2017 | | | | | | | $ | 5,857 |
|
| | | | | | | | |
| 9/10/2017 - 10/7/2017 | 1.5 |
| | $ | 112.85 |
| | 1.5 |
| | (167 | ) |
| | | | | | | | 5,690 |
|
| 10/8/2017 - 11/4/2017 | 1.3 |
| | $ | 111.00 |
| | 1.3 |
| | (139 | ) |
| | | | | | | | 5,551 |
|
| 11/5/2017 - 12/2/2017 | 1.1 |
| | $ | 114.32 |
| | 1.1 |
| | (126 | ) |
| | | | | | | | 5,425 |
|
| 12/3/2017 - 12/30/2017 | 0.6 |
| | $ | 117.55 |
| | 0.6 |
| | (72 | ) |
| Total | 4.5 |
| | $ | 113.34 |
| | 4.5 |
| | $ | 5,353 |
|
| |
(a) | All shares were repurchased in open market transactions pursuant to publicly announced repurchase programs. |
| |
(b) | Includes shares authorized for repurchase under the $12 billion repurchase program authorized by our Board of Directors and publicly announced on February 11, 2015, which commenced on July 1, 2015 and expires on June 30, 2018. On February 13, 2018, we publicly announced a new repurchase program of up to $15 billion of our common stock, which will commence on July 1, 2018 and expire on June 30, 2021, and such shares are excluded from the above table. Such shares may be repurchased in open market transactions, in privately negotiated transactions, in accelerated stock repurchase transactions or otherwise. |
The Company does not have any authorized, but unissued, “blank check preferred stock.”
The following table summarizes our convertible preferred share repurchases during the fourth quarter of 2017.
Issuer Purchases of Convertible Preferred Stock |
| | | | | | | | | | |
| Period | Total Number of Shares Repurchased | | Average Price Paid Per Share | | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | | Maximum Number (or Approximate Dollar Value) of Shares that May Yet Be Purchased Under the Plans or Programs |
| 9/10/2017 - 10/7/2017 | — |
| | $ | — |
| | N/A | | N/A |
| | | | | | | | |
| 10/8/2017 - 11/4/2017 | 1,000 |
| | $ | 548.21 |
| | N/A | | N/A |
| | | | | | | | |
| 11/5/2017 - 12/2/2017 | — |
| | $ | — |
| | N/A | | N/A |
| | | | | | | | |
| 12/3/2017 - 12/30/2017 | 900 |
| | $ | 578.48 |
| | N/A | | N/A |
| Total | 1,900 |
| | $ | 562.55 |
| | N/A | | N/A |
Item 6. Selected Financial Data.
Five-Year Summary
(unaudited, in millions except per share amounts)
The following selected financial data should be read in conjunction with “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations,” our consolidated financial statements and accompanying notes thereto. Our fiscal year ends on the last Saturday of each December and our fiscal year 2016 comprised fifty-three reporting weeks while all other fiscal years presented in the tables below comprised fifty-two reporting weeks.
|
| | | | | | | | | | | | | | | | | | | |
| | 2017 | | 2016 | | 2015 | | 2014 | | 2013 |
Net revenue (a) | $ | 63,525 |
| | $ | 62,799 |
| | $ | 63,056 |
| | $ | 66,683 |
| | $ | 66,415 |
|
| Operating profit | $ | 10,509 |
| | $ | 9,785 |
| | $ | 8,353 |
| | $ | 9,581 |
| | $ | 9,705 |
|
Provision for income taxes (b) | $ | 4,694 |
| | $ | 2,174 |
| | $ | 1,941 |
| | $ | 2,199 |
| | $ | 2,104 |
|
Net income attributable to PepsiCo (b) | $ | 4,857 |
| | $ | 6,329 |
| | $ | 5,452 |
| | $ | 6,513 |
| | $ | 6,740 |
|
Net income attributable to PepsiCo per common share – basic (b) | $ | 3.40 |
| | $ | 4.39 |
| | $ | 3.71 |
| | $ | 4.31 |
| | $ | 4.37 |
|
Net income attributable to PepsiCo per common share – diluted (b) | $ | 3.38 |
| | $ | 4.36 |
| | $ | 3.67 |
| | $ | 4.27 |
| | $ | 4.32 |
|
| Cash dividends declared per common share | $ | 3.1675 |
| | $ | 2.96 |
| | $ | 2.7625 |
| | $ | 2.5325 |
| | $ | 2.24 |
|
| Total assets | $ | 79,804 |
| | $ | 73,490 |
| | $ | 68,976 |
| | $ | 69,634 |
| | $ | 76,762 |
|
| Long-term debt | $ | 33,796 |
| | $ | 30,053 |
| | $ | 29,213 |
| | $ | 23,821 |
| | $ | 24,333 |
|
| |
(a) | Our fiscal 2016 results included an extra week of results. The 53rd reporting week increased 2016 net revenue by $657 million, including $294 million in our FLNA segment, $43 million in our QFNA segment, $300 million in our NAB segment and $20 million in our ESSA segment.
|
| |
(b) | Includes the provisional impact of the TCJ Act enacted in 2017. See Note 5 to our consolidated financial statements for additional information.
|
The following information highlights certain items that impacted our results of operations and financial condition for the five years presented above:
|
| | | | | | | | | | | | | | | |
| | 2017 |
| | Operating profit | | Provision for income taxes(c) | | Net income attributable to PepsiCo | | Net income attributable to PepsiCo per common share – diluted |
Mark-to-market net impact (d) | $ | 15 |
| | $ | (7 | ) | | $ | 8 |
| | $ | 0.01 |
|
Restructuring and impairment charges (e) | $ | (295 | ) | | $ | 71 |
| | $ | (224 | ) | | $ | (0.16 | ) |
Provisional net tax expense related to the TCJ Act (f) | $ | — |
| | $ | (2,451 | ) | | $ | (2,451 | ) | | $ | (1.70 | ) |
Gain on sale of Britvic plc (Britvic) securities (g) | $ | 95 |
| | $ | (10 | ) | | $ | 85 |
| | $ | 0.06 |
|
Gain on beverage refranchising (h) | $ | 140 |
| | $ | (33 | ) | | $ | 107 |
| | $ | 0.07 |
|
Gain on sale of assets (i) | $ | 87 |
| | $ | (25 | ) | | $ | 62 |
| | $ | 0.04 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | 2016 |
| | Operating profit | | Interest expense | | Provision for income
taxes(c) | | Net income attributable to noncontrolling interests | | Net income attributable to PepsiCo | | Net income attributable to PepsiCo per common share – diluted |
Mark-to-market net impact (d) | $ | 167 |
| | $ | — |
| | $ | (56 | ) | | $ | — |
| | $ | 111 |
| | $ | 0.08 |
|
Restructuring and impairment charges (e) | $ | (160 | ) | | $ | — |
| | $ | 26 |
| | $ | 3 |
| | $ | (131 | ) | | $ | (0.09 | ) |
Charge related to the transaction with Tingyi (j) | $ | (373 | ) | | $ | — |
| | $ | — |
| | $ | — |
| | $ | (373 | ) | | $ | (0.26 | ) |
Charge related to debt redemption (k) | $ | — |
| | $ | (233 | ) | | $ | 77 |
| | $ | — |
| | $ | (156 | ) | | $ | (0.11 | ) |
Pension-related settlement charge (l) | $ | (242 | ) | | $ | — |
| | $ | 80 |
| | $ | — |
| | $ | (162 | ) | | $ | (0.11 | ) |
53rd reporting week (m) | $ | 126 |
| | $ | (19 | ) | | $ | (44 | ) | | $ | (1 | ) | | $ | 62 |
| | $ | 0.04 |
|
|
| | | | | | | | | | | | | | | |
| | 2015 |
| | Operating profit | | Provision for income taxes(c) | | Net income attributable to PepsiCo | | Net income attributable to PepsiCo per common share – diluted |
Mark-to-market net impact (d) | $ | 11 |
| | $ | (3 | ) | | $ | 8 |
| | $ | — |
|
Restructuring and impairment charges (e) | $ | (230 | ) | | $ | 46 |
| | $ | (184 | ) | | $ | (0.12 | ) |
Charge related to the transaction with Tingyi (j) | $ | (73 | ) | | $ | — |
| | $ | (73 | ) | | $ | (0.05 | ) |
Pension-related settlement benefits (l) | $ | 67 |
| | $ | (25 | ) | | $ | 42 |
| | $ | 0.03 |
|
Venezuela impairment charges (n) | $ | (1,359 | ) | | $ | — |
| | $ | (1,359 | ) | | $ | (0.91 | ) |
Tax benefit (o) | $ | — |
| | $ | 230 |
| | $ | 230 |
| | $ | 0.15 |
|
Müller Quaker Dairy (MQD) impairment (p)
| $ | (76 | ) | | $ | 28 |
| | $ | (48 | ) | | $ | (0.03 | ) |
Gain on beverage refranchising (h) | $ | 39 |
| | $ | (11 | ) | | $ | 28 |
| | $ | 0.02 |
|
Other productivity initiatives (q) | $ | (90 | ) | | $ | 24 |
| | $ | (66 | ) | | $ | (0.04 | ) |
Joint venture impairment charge (r) | $ | (29 | ) | | $ | — |
| | $ | (29 | ) | | $ | (0.02 | ) |
|
| | | | | | | | | | | | | | | | | | | |
| | 2014 |
| | Operating profit | | Provision for income taxes(c) | | Net income attributable to noncontrolling interests | | Net income attributable to PepsiCo | | Net income attributable to PepsiCo per common share – diluted |
Mark-to-market net impact (d) | $ | (68 | ) | | $ | 24 |
| | $ | — |
| | $ | (44 | ) | | $ | (0.03 | ) |
Restructuring and impairment charges (e) | $ | (418 | ) | | $ | 99 |
| | $ | 3 |
| | $ | (316 | ) | | $ | (0.21 | ) |
Pension-related settlement charge (l) | $ | (141 | ) | | $ | 53 |
| | $ | — |
| | $ | (88 | ) | | $ | (0.06 | ) |
Venezuela remeasurement charge (s) | $ | (105 | ) | | $ | — |
| | $ | — |
| | $ | (105 | ) | | $ | (0.07 | ) |
Gain on sale of assets (i) | $ | 31 |
| | $ | 3 |
| | $ | — |
| | $ | 34 |
| | $ | 0.02 |
|
Other productivity initiatives (q) | $ | (67 | ) | | $ | 13 |
| | $ | — |
| | $ | (54 | ) | | $ | (0.04 | ) |
|
| | | | | | | | | | | | | | | |
| | 2013 |
| | Operating profit | | Provision for income taxes(c) | | Net income attributable to PepsiCo | | Net income attributable to PepsiCo per common share – diluted |
Mark-to-market net impact (d) | $ | (72 | ) | | $ | 28 |
| | $ | (44 | ) | | $ | (0.03 | ) |
Restructuring and impairment charges (e) | $ | (163 | ) | | $ | 34 |
| | $ | (129 | ) | | $ | (0.08 | ) |
Tax benefit (o) | $ | — |
| | $ | 209 |
| | $ | 209 |
| | $ | 0.13 |
|
Venezuela remeasurement charge (s) | $ | (111 | ) | | $ | — |
| | $ | (111 | ) | | $ | (0.07 | ) |
Merger and integration charges (t) | $ | (10 | ) | | $ | 2 |
| | $ | (8 | ) | | $ | (0.01 | ) |
Gain on beverage refranchising (h) | $ | 137 |
| | $ | — |
| | $ | 137 |
| | $ | 0.09 |
|
| |
(c) | Provision for income taxes is the expected tax benefit/charge on the underlying item based on the tax laws and income tax rates applicable to the underlying item in its corresponding tax jurisdiction and tax year and, in 2017, the impact of the TCJ Act is presented separately. |
| |
(d) | Mark-to-market net gains and losses on commodity derivatives in corporate unallocated expenses. |
| |
(e) | Expenses related to the 2014 Multi-Year Productivity Plan (2014 Productivity Plan) and 2012 Multi-Year Productivity Plan (2012 Productivity Plan). See Note 3 to our consolidated financial statements. |
| |
(f) | In 2017, provisional net tax expense associated with the enactment of the TCJ Act. See Note 5 to our consolidated financial statements.
|
| |
(g) | In 2017, gain in the ESSA segment associated with the sale of our minority stake in Britvic. |
| |
(h) | In 2017, gain in the AMENA segment associated with refranchising our beverage business in Jordan. See Note 14 to our consolidated financial statements. In 2015 and 2013, gains in the AMENA segment associated with refranchising a portion of our beverage businesses in India and the refranchising of our beverage business in Vietnam, respectively. |
| |
(i) | In 2017, gains associated with the sale of assets in the following segments: $17 million in FLNA, $21 million in NAB, $21 million in AMENA and $28 million in corporate unallocated expenses. In 2014, gain in the ESSA segment associated with the sale of agricultural assets in Russia.
|
| |
(j) | In 2016, impairment charge in the AMENA segment to reduce the value of our 5% indirect equity interest in Tingyi-Asahi Beverages Holding Co. Ltd. (TAB) to its estimated fair value. In 2015, write-off in the AMENA segment of the value of a call option to increase our holding in TAB to 20%. See Note 9 to our consolidated financial statements. |
| |
(k) | In 2016,interest expense primarily representing the premium paid in accordance with the “make-whole” redemption provisions to redeem all of our outstanding 7.900% senior notes due 2018 and 5.125% senior notes due 2019 for the principal amounts of $1.5 billion and $750 million, respectively. See Note 8 to our consolidated financial statements.
|
| |
(l) | In 2016, pension settlement charge in corporate unallocated expenses related to the purchase of a group annuity contract. In 2015, benefits in the NAB segment associated with the settlement of pension-related liabilities from previous acquisitions. In 2014, lump sum settlement charges in corporate unallocated expenses related to payments for pension liabilities to certain former employees who had vested benefits. |
| |
(m) | Our fiscal 2016 results included the 53rd reporting week, the impact of which was fully offset by incremental investments in our business.
|
| |
(n) | In 2015, charges in the Latin America segment related to the impairment of investments in our wholly-owned Venezuelan subsidiaries and beverage joint venture. Beginning in the fourth quarter of 2015, our financial results have not included the results of our Venezuelan businesses. See Note 1 to our consolidated financial statements. |
| |
(o) | In 2015, non-cash tax benefit associated with our agreement with the IRS resolving substantially all open matters related to the audits for taxable years 2010 through 2011, which reduced our reserve for uncertain tax positions for the tax years 2010 through 2011. In 2013, non-cash tax benefit associated with our agreement with the IRS resolving all open matters related to the audits for taxable years 2003 through 2009, which reduced our reserve for uncertain tax positions for the tax years 2003 through 2012. |
| |
(p) | In 2015, impairment charges in the QFNA segment associated with our MQD joint venture investment, including a charge related to ceasing its operations. |
| |
(q) | In 2015 and 2014, expenses related to other productivity initiatives outside the scope of the 2014 and 2012 Productivity Plans. |
| |
(r) | In 2015, impairment charge in the AMENA segment associated with a joint venture in the Middle East. |
| |
(s) | In 2014, net charge related to our remeasurement of the bolivar for certain net monetary assets of our Venezuelan businesses. $126 million of this charge was in corporate unallocated expenses, with the balance (equity income of $21 million) in our Latin America segment. In 2013, net charge related to the devaluation of the bolivar for our Venezuelan businesses. $124 million of this charge was in corporate unallocated expenses, with the balance (equity income of $13 million) in our Latin America segment. |
| |
(t) | In 2013, merger and integration charges in the ESSA segment related to our acquisition of WBD. |
Selected Quarterly Financial Data
Selected financial data for 2017 and 2016 is summarized as follows and highlights certain items that impacted our quarterly results (in millions except per share amounts, unaudited):
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 2017 | | 2016 |
| | First Quarter |
| | Second Quarter |
| | Third Quarter |
| | Fourth Quarter |
| | First Quarter |
| | Second Quarter |
| | Third Quarter |
| | Fourth Quarter |
|
Net revenue (a) | $ | 12,049 |
| | $ | 15,710 |
| | $ | 16,240 |
| | $ | 19,526 |
| | $ | 11,862 |
| | $ | 15,395 |
| | $ | 16,027 |
| | $ | 19,515 |
|
| Gross profit | $ | 6,763 |
| | $ | 8,654 |
| | $ | 8,874 |
| | $ | 10,449 |
| | $ | 6,711 |
| | $ | 8,565 |
| | $ | 8,743 |
| | $ | 10,571 |
|
| Operating profit | $ | 1,933 |
| | $ | 2,990 |
| | $ | 2,993 |
| | $ | 2,593 |
| | $ | 1,619 |
| | $ | 2,964 |
| | $ | 2,821 |
| | $ | 2,381 |
|
Mark-to-market net impact (b) | $ | (14 | ) | | $ | (26 | ) | | $ | 27 |
| | $ | 28 |
| | $ | 46 |
| | $ | 100 |
| | $ | (39 | ) | | $ | 60 |
|
Restructuring and impairment charges (c) | $ | (27 | ) | | $ | (34 | ) | | $ | (8 | ) | | $ | (226 | ) | | $ | (30 | ) | | $ | (49 | ) | | $ | (27 | ) | | $ | (54 | ) |
Provisional net tax expense related to the TCJ Act (d) | — |
| | — |
| | — |
| | $ | (2,451 | ) | | — |
| | — |
| | — |
| | — |
|
Gain on sale of Britvic securities (e) | — |
| — |
| $ | 95 |
| — |
| — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Gain on beverage refranchising (f) | — |
| — |
| — |
| — |
| — |
| | $ | 140 |
| | — |
| | — |
| | — |
| | — |
|
Gain on sale of assets (g) | — |
| | — |
| | $ | 21 |
| | $ | 66 |
| | — |
| | — |
| | — |
| | — |
|
Charge related to the transaction with Tingyi (h) | — |
| | — |
| | — |
| | — |
| | $ | (373 | ) | | — |
| | — |
| | — |
|
Charge related to debt redemption (i) | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | $ | (233 | ) |
Pension-related settlement charge (j) | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | $ | (242 | ) |
53rd reporting week (k) | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | $ | 126 |
|
Provision for income taxes (l) | $ | 392 |
| | $ | 656 |
| | $ | 620 |
| | $ | 3,026 |
| | $ | 442 |
| | $ | 718 |
| | $ | 600 |
| | $ | 414 |
|
Net income/(loss) attributable to PepsiCo (l) | $ | 1,318 |
| | $ | 2,105 |
| | $ | 2,144 |
| | $ | (710 | ) | | $ | 931 |
| | $ | 2,005 |
| | $ | 1,992 |
| | $ | 1,401 |
|
Net income/(loss) attributable to PepsiCo per common share (l) | | | | | | | | | | | | | | | |
| Basic | $ | 0.92 |
| | $ | 1.47 |
| | $ | 1.50 |
| | $ | (0.50 | ) | | $ | 0.64 |
| | $ | 1.39 |
| | $ | 1.38 |
| | $ | 0.98 |
|
| Diluted | $ | 0.91 |
| | $ | 1.46 |
| | $ | 1.49 |
| | $ | (0.50 | ) | | $ | 0.64 |
| | $ | 1.38 |
| | $ | 1.37 |
| | $ | 0.97 |
|
| Cash dividends declared per common share | $ | 0.7525 |
| | $ | 0.805 |
| | $ | 0.805 |
| | $ | 0.805 |
| | $ | 0.7025 |
| | $ | 0.7525 |
| | $ | 0.7525 |
| | $ | 0.7525 |
|
Stock price per share (m) | | | | | | | | | | | | | | | |
| High | $ | 112.38 |
| | $ | 118.12 |
| | $ | 119.39 |
| | $ | 120.57 |
| | $ | 102.12 |
| | $ | 106.94 |
| | $ | 110.94 |
| | $ | 109.71 |
|
| Low | $ | 101.06 |
| | $ | 111.34 |
| | $ | 112.25 |
| | $ | 106.19 |
| | $ | 93.25 |
| | $ | 100.00 |
| | $ | 101.30 |
| | $ | 98.50 |
|
| |
(a) | Our fiscal 2016 results included a 53rd reporting week whichincreased 2016 net revenue by $657 million, including $294 million in our FLNA segment, $43 million in our QFNA segment, $300 million in our NAB segment and $20 million in our ESSA segment.
|
| |
(b) | Mark-to-market net gains and losses on commodity derivatives in corporate unallocated expenses. |
| |
(c) | Expenses related to the 2014 and 2012 Productivity Plans. See Note 3 to our consolidated financial statements. |
| |
(d) | In 2017, provisional net tax expense associated with the enactment of the TCJ Act. See Note 5 to our consolidated financial statements.
|
| |
(e) | In 2017, gain in the ESSA segment associated with the sale of our minority stake in Britvic. See Note 9 to our consolidated financial statements. |
| |
(f) | In 2017, gain in the AMENA segment associated with refranchising our beverage business in Jordan. See Note 14 to our consolidated financial statements. |
| |
(g) | In 2017, gains associated with the sale of assets in the following segments: $17 million in FLNA, $21 million in NAB, $21 million in AMENA and $28 million in corporate unallocated expenses. |
| |
(h) | In 2016, impairment charge in the AMENA segment to reduce the value of our 5% indirect equity interest in TAB to its estimated fair value. See Note 9 to our consolidated financial statements. |
| |
(i) | In 2016, interest expense primarily representing the premium paid in accordance with the “make-whole” redemption provisions to redeem all of our outstanding 7.900% senior notes due 2018 and 5.125% senior notes due 2019 for the principal amounts of $1.5 billion and $750 million, respectively. See Note 8 to our consolidated financial statements. |
| |
(j) | In 2016, pension settlement charge in corporate unallocated expenses related to the purchase of a group annuity contract. |
| |
(k) | Our fiscal 2016 results included the 53rd reporting week, the impact of which was fully offset by incremental investments in our business.
|
| |
(l) | Includes the provisional impact of the TCJ Act enacted in the fourth quarter of 2017. See Note 5 to our consolidated financial statements for additional information. |
| |
(m) | Reflects the quarterly composite high and low sales prices for one share of PepsiCo common stock as reported on The New York Stock Exchange from December 27, 2015 through December 19, 2017 and The Nasdaq Global Select Market from December 20, 2017 through December 30, 2017. |
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
| | | | | |
| OUR BUSINESS | |
OUR BUSINESS | |
| Executive Overview | |
| Our Operations | |
| Other Relationships | |
| Our Business Risks | |
| OUR FINANCIAL RESULTS | |
| Results of Operations – Consolidated Review | |
Non-GAAP Measures | |
Items Affecting Comparability | |
| Results of Operations – Division Review | |
Frito-Lay North AmericaFLNA | |
Quaker Foods North AmericaQFNA | |
North America BeveragesPBNA | |
Latin AmericaLatAm | |
Europe Sub-Saharan Africa | |
Asia, Middle East and North AfricaAMESA | |
| APAC | |
| Non-GAAP Measures | |
| Items Affecting Comparability | |
| Our Liquidity and Capital Resources | |
| Changes in Line Items in Our Consolidated Financial Statements | |
| Return on Invested Capital | |
| OUR CRITICAL ACCOUNTING POLICIES AND ESTIMATES | |
| Revenue Recognition | |
| Goodwill and Other Intangible Assets | |
| Income Tax Expense and Accruals | |
| Pension and Retiree Medical Plans | |
Consolidated Statement of IncomeCONSOLIDATED STATEMENT OF INCOME | |
Consolidated Statement of Comprehensive IncomeCONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME | |
Consolidated Statement of Cash FlowsCONSOLIDATED STATEMENT OF CASH FLOWS | |
Consolidated Balance SheetCONSOLIDATED BALANCE SHEET | |
Consolidated Statement of EquityCONSOLIDATED STATEMENT OF EQUITY | |
Notes to Consolidated Financial StatementsNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS | |
| Note 1 – Basis of Presentation and Our Divisions | |
| Note 2 – Our Significant Accounting Policies | |
| Note 3 – Restructuring and Impairment Charges | |
Note 4 – Property, Plant and Equipment and Intangible Assets | |
| Note 5 – Income Taxes | |
| Note 6 – Share-Based Compensation | |
| Note 7 – Pension, Retiree Medical and Savings Plans | |
| Note 8 – Debt Obligations | |
| Note 9 – Financial Instruments | |
| Note 10 – Net Income Attributable to PepsiCo per Common Share | |
| |
Note 11 – Preferred Stock | |
Note 12 – Accumulated Other Comprehensive Loss Attributable to PepsiCo | |
| Note 12 – Leases | |
| Note 13 – Acquisitions and Divestitures | |
| Note 14 – Supply Chain Financing Arrangements | |
| Note 15 – Supplemental Financial Information | |
| Note 14 – Divestitures |
MANAGEMENT’S RESPONSIBILITY FOR FINANCIAL REPORTING | |
| REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM | |
| GLOSSARY | |
Our discussion and analysis is intended to help the reader understand our results of operations and financial condition and is provided as an addition to, and should be read in connection with, our consolidated financial statements and the accompanying notes. Definitions of key terms can be found in the
glossary beginning on page 130. Tabularglossary. Unless otherwise noted, tabular dollars are presented in millions, except per share amounts. All per share amounts reflect common stock per share amounts, assume dilution unless otherwise noted, and are based on unrounded amounts. Percentage changes are based on unrounded amounts.
Discussion in this Form 10-K includes results of operations and financial condition for 2023 and 2022 and year-over-year comparisons between 2023 and 2022. For discussion on results of operations and financial condition pertaining to 2021 and year-over-year comparisons between 2022 and 2021, please refer to “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2022.
OUR BUSINESS
Executive Overview
We arePepsiCo is a leading global convenient food and beverage company with a complementary portfolio of enjoyable brands, including Frito-Lay,Lay’s, Doritos, Cheetos, Gatorade, Pepsi-Cola, Mountain Dew, Quaker and Tropicana.SodaStream. Through our operations, authorized bottlers, contract manufacturers and other third parties, we make, market, distribute and sell a wide variety of beverages and convenient and enjoyable beverages, foods, and snacks, serving customers and consumers in more than 200 countries and territories.
At PepsiCo,As a global company with deep local ties, we faced many of the same challenges in 2023 as our consumers, customers, and competitors across the world, including supply chain disruptions; inflationary pressures; shifting consumer preferences and behaviors; ongoing climate issues; a highly competitive operating environment; a rapidly changing retail landscape, including growth in e-commerce; continued macroeconomic and political volatility, including the deadly conflicts in Ukraine and the Middle East; and an evolving regulatory landscape.
To meet the challenges of today – and those of tomorrow – we are driven by an approach called pep+ (PepsiCo Positive). pep+ is a strategic end-to-end transformation of our business, with sustainability at the center of how the company will strive to create growth and value, while inspiring positive change for the planet and people. pep+ guides how we are working to transform our business operations, and can be seen in such efforts as sourcing ingredients and making and selling products in a more sustainable way, to leveraging our more than one billion connections with consumers each day, to driving positive change across our value chain and inspiring people to make choices that are better for themselves and the planet.
pep+ drives action and progress across three key pillars:
Positive Agriculture: We are working to expand and share regenerative practices across seven million acres (approximately equal to the company’s agricultural footprint, sustainably source key crops and ingredients, and improve the livelihoods of more people in our agricultural supply chain. Understanding that scale and collaboration are essential to achieve these goals, in 2023, we expanded our partnership approach with new programs aimed at accelerating regenerative agriculture. This included a $120 million investment with Walmart to support regenerative agriculture on more than two million acres of farmland in the United States and Canada and a $216 million investment with three of the most well-respected farmer-facing organizations—Practical Farmers of Iowa, the Soil and Water Outcomes Fund and the Illinois Corn Growers Association—to help drive adoption of regenerative agriculture practices across the United States.
Technology is also a key enabler. Through the third year of our Positive Agriculture Outcomes Accelerator, we invested in a variety of practical advancements with farmers across the globe, including weather stations in Pakistan, on-farm water analysis in Iraq and sprinkler irrigation systems in Colombia.
We have continued developing new solutions, such as fertilizer produced from green hydrogen through a partnership with Fertiberia in Spain, aiming to reduce emissions by 15% in potato crops. And through innovations such as Agroscout, which combines artificial intelligence and drone technology, we are able to identify crop diseases more efficiently, reducing pesticide use and improving crop yields.
Positive Value Chain: We are working to help build a circular and inclusive value chain through actions aiming to: achieve net-zero emissions by 2040; become net water positive by 2030; and introduce more sustainable packaging into the value chain. Our packaging goals include cutting virgin plastic per serving, using more recycled content in our plastic packaging, and scaling our reusable packaging offerings by 2030.
As we work to decarbonize our operations, alongside growing our use of electric and alternative low emission fuel vehicles, in 2023 we opened our first biomethane plant at our foods site in Manisa, Turkey, converting dried corn husks and potato peelings into biogas. We are also embedding pep+ into our new facilities, including our $320 million manufacturing facility in Poland.
To support our customers on their sustainability journey, we launched pep+ Partners for Tomorrow in the United States to share training and initiatives on one platform. We are focused on operatingreducing virgin plastic through new launches of bottles made with recycled plastic in India and the United Arab Emirates, while also expanding paper options, such as our companyQuaker pots and Walkers multipacks in the United Kingdom. In December 2023, Walkers Sunbites announced the introduction of new packaging made with 50% recycled plastic. Through 2023, we continued to scale new business models that require little or no single-use packaging, including the iconic SodaStream, already sold in more than 40 countries. We also offer returnable bottles in Mexico and Spain and are engaged in reusable cup pilots, including in the United States.
We are also making progress on our diversity, equity and inclusion journey around the world. And we continue to empower each of our approximately 318,000 employees to make a way that generates sustained financial growthpositive impact in their communities through our global workforce volunteering program, One Smile at a Time.
Positive Choices: We continue working to evolve our portfolio of convenient food and consistently strong returnsbeverage products so they continue to be positive for the planet and is also responsivepeople, including by incorporating more diverse ingredients in both new and existing products, prioritizing legumes, plant-based proteins, whole grains and fruits and vegetables; expanding our position in the nuts and seeds category; accelerating our reduction of added sugars and sodium through the use of science-based targets across our portfolio; and cooking our food offerings with healthier oils. In 2023, we announced two new ambitious nutrition goals, which aim to the needsfurther reduce sodium and purposefully deliver 145 billion portions of the world around us. diverse ingredients annually by 2030.
We call this approach Performance with Purpose — it is embedded into our business and our strategy — and it enabled us to deliver another year of strong performance in 2017.
As we look to 2018 and beyond, we believe our Performance with Purpose strategythese priorities will enable us to continue delivering strong performance while positioningposition our Company for long-term sustainable growth.
Our strategies are designed to address key challenges facing our Company, including: macroeconomic and political volatility and the continued rebalancing of the economic world; shifting consumer preferences and increasing demand for more nutritious foods and beverages; the disruption of retail; the expansion of hard discounters; and the emergence of niche brands laying claim to large consumer segments, particularly in developed markets. We intend to focus on the following areas to address and adapt to these challenges:
Utilizing the strength of our distribution system to offer consumers a wide array of choices, from “fun-for-you” to “better-for-you” to “good-for-you” products to meet consumers’ demand for more nutritious foods and beverages;
Continuing to strengthen our retail and foodservice relationships to sell our products faster, increase cash flow and engage consumers;
Minimizing our environmental footprint to streamline costs and mitigate our operational impact on the communities in which we operate;
Continuing to invest in our associates so that we have the best talent to position our company for continued growth; and
Continuing our investments in e-commerce and digital solutions to meet changing consumer consumption patterns and capture cost savings while streamlining our operations.
See also “Item 1A. Risk Factors” for additionalfurther information about risks and uncertainties that the Company faces.
Our Operations
See “Item 1. Business” for information on our divisions and a description of our distribution network, ingredients and other supplies, brands and intellectual property rights, seasonality, customers, competition, research and competition.development, regulatory matters and human capital. In addition, see Note 1 to our consolidated financial statements for financial information about our divisions
and geographic areas.
Other Relationships
Certain members of our Board of Directors also serve on the boards of certain vendors and customers. These Board members do not participate in our vendor selection and negotiations nor in our customer negotiations. Our
transactions with these vendors and customers are in the normal course of business and are consistent with terms negotiated with other vendors and customers. In addition, certain of our employees serve on the boards of Pepsi Bottling Ventures LLC and other affiliated companies of PepsiCo and do not receive incremental compensation for such services.
Our Business Risks
Risks Associated with Commodities and Our Supply Chain
During 2023, we continued to experience significantly higher operating costs, including on transportation, labor and commodity (including energy) costs, which may continue in 2024. Many of the commodities used in the production and transportation of our products are purchased in the open market. The prices we pay for such items are subject to fluctuation, and we manage this risk through the use of fixed-price contracts and purchase orders, pricing agreements and derivative instruments, including swaps and futures. A number of external factors, including the ongoing conflict in Ukraine, the inflationary cost environment, adverse weather conditions, supply chain disruptions (including raw material shortages) and labor shortages, have impacted and may continue to impact transportation, labor and commodity availability and costs. When prices increase, we may or may not pass on such increases to our customers without suffering reduced volume, revenue, margins and operating results.
See Note 9 to our consolidated financial statements for further information on how we manage our exposure to commodity prices.
Risks Associated with Climate Change
Certain jurisdictions in which our products are made, manufactured, distributed or sold have either imposed, or are considering imposing, new or increased legal and regulatory requirements to reduce or mitigate the potential effects of climate change, including regulation of greenhouse gas emissions and potential carbon pricing programs. These new or increased legal or regulatory requirements, along with initiatives to meet our sustainability goals, could result in significant increased costs and additional investments in facilities and equipment. However, we are unable to predict the scope, nature and timing of any new or increased environmental laws and regulations and therefore cannot predict the ultimate impact of such laws and regulations on our business or financial results. We continue to monitor existing and proposed laws and regulations in the jurisdictions in which our products are made, manufactured, distributed and sold and to consider actions we may take to potentially mitigate the unfavorable impact, if any, of such laws or regulations.
Risks Associated with International Operations
We are subject to risks in the normal course of business.business that are inherent to international operations. During 2017 and 2016,the periods presented in this report, certain jurisdictions in which our products are made, manufactured, distributed or sold, including in certain developing and emerging markets, operated in a challenging environment, experiencing unstable economic, political and social conditions, civil unrest, geopolitical conflicts, acts of war, terrorist acts, natural disasters, debt and credit issues and currency controls or fluctuations. We continue to monitor the economic, operating and political environment in these markets closely, including risks of additional impairments or write-offs, and to identify actions to potentially mitigate any unfavorable impacts on our future results.
The hurricanesSee Notes 1 and earthquakes which occurred in the third and fourth quarters of 2017 in North and Central America did not materially impact4 to our consolidated financial resultsstatements for a discussion of impairment charges recognized in 2017.the years ended December 30, 2023 and December 31, 2022.
Risks Associated with the Deadly Conflict in Ukraine
In addition to the risks associated with international operations discussed above, we continue to face risks associated with the ongoing conflict in Ukraine. The conflict and related sanctions imposed on Russia by
the United States and others has continued to result in worldwide geopolitical and macroeconomic uncertainty and has impacted our operations in Ukraine and Russia. We have suspended sales to our customers of Pepsi-Cola and certain of our other global beverage brands, our discretionary capital investments and advertising and promotional activities in Russia, which has negatively impacted and could continue to negatively impact our business. We continue to offer our other products in Russia. Our operations in Russia accounted for 4% and 5% of our consolidated net revenue for the years ended December 30, 2023 and December 31, 2022, respectively. Russia accounted for 3% and 4% of our consolidated assets and 35% and 32% of our accumulated currency translation adjustment loss as of December 30, 2023 and December 31, 2022, respectively. Our operations in Ukraine accounted for 0.3% and 0.2% of our consolidated net revenue for the years ended December 30, 2023 and December 31, 2022, respectively. Ukraine accounted for 0.1% of our consolidated assets as of December 30, 2023 and December 31, 2022.
The conflict has resulted and could continue to result in volatile commodity markets, supply chain disruptions, increased risk of cyber incidents or other disruptions to our information systems, reputational risks, heightened risks to employee safety, business disruptions (including labor shortages), significant volatility of the Russian ruble, limitations on access to credit markets and other corporate banking services, including working capital facilities, reduced availability and increased costs for transportation, energy, packaging, raw materials and other input costs, environmental, health and safety risks related to securing and maintaining facilities, additional sanctions, export controls and other legislation or regulations (including restrictions on the transfer of funds to and from Russia). The ongoing conflict could result in the temporary or permanent loss of assets, including the nationalization or expropriation of assets, result in additional impairment charges or significantly affect our ability to manage our operations in these markets which could result in the deconsolidation of such businesses. We cannot predict how and the extent to which the conflict will continue to affect our employees, customers, operations or business partners or impact our ability to achieve certain of our sustainability goals. The conflict has adversely affected and could continue to adversely affect demand for our products and our global business. See Notes 1 and 4 to our consolidated financial statements for a discussion of the Russia-Ukraine conflict charges, including impairment charges, recognized in the year ended December 31, 2022.
The extent of the impact of these tragic events on our business remains uncertain and will continue to depend on numerous evolving factors that we are not able to accurately predict, including the duration and scope of the conflict, regional instability and ongoing and additional financial and economic sanctions, export controls and other legislation imposed by governments. We will continue to monitor and assess the situation as circumstances evolve and to identify actions to potentially mitigate any unfavorable impacts on our future results.
Imposition of Taxes and Regulations on our Products
Certain jurisdictions in which our products are made, manufactured, distributed or sold have either imposed, or are considering imposing, new or increased taxes or regulations on the manufacture, distribution or sale of our products or their packaging, ingredients or substances contained in, or attributes of, our products or their packaging, commodities used in the production of our products.products or their packaging or the recyclability or recoverability of our packaging. These taxes and regulations vary in scope and form:form. For example, some taxes apply to all beverages, including non-caloric beverages, while others apply only to beverages with a caloric sweetener (e.g., sugar). Similarly,Further, some measuresregulations apply a single tax rate per liquid ounceto all products using certain types of packaging (e.g., plastic), while others apply a graduated tax rate depending uponare designed to increase the amountsustainability of added sugarpackaging, encourage waste reduction and increased recycling rates or facilitate the waste management process or restrict the sale of products in the beverage and some apply a flat tax rate on beverages containing a particular substance or ingredient.certain packaging.
We sell a wide variety of beverages foods and snackconvenient foods in more than 200 countries and territories and the profile of the products we sell, and the amount of revenue attributable to such products variesand the type of
packaging used vary by jurisdiction. Because of this, we cannot predict the scope or form potential taxes, regulations or other potential limitations on our products or their packaging may take, and therefore cannot predict the impact of such taxes, regulations or limitations on our financial results. In addition, taxes, regulations and limitations may impact us and our competitors differently. We continue to monitor existing and proposed taxes and regulations in the jurisdictions in which our products are made, manufactured, distributed and sold and to consider actions we may take to potentially mitigate the unfavorable impact, if any, of such taxes, regulations or limitations, including advocating alternative measures with respect to the imposition, form and scope of any such taxes, regulations or limitations.
In addition,OECD Global Minimum Tax
Numerous countries have agreed to a statement in support of the OECD model rules that propose a global minimum tax rate of 15%. Certain countries, including European Union member states, have enacted or are expected to enact legislation incorporating the agreed to global minimum tax with effect as early as 2024, and widespread implementation of a global minimum tax is expected as soon as 2025. As the legislation becomes effective in countries in which we do business, our taxes could increase and negatively impact our provision for income taxes. We will continue to monitor pending legislation and implementation by individual countries and evaluate the potential impact on our business in future periods.
Retail Landscape
Our industry has beencontinues to be affected by disruption of the retail landscape, including the rapidcontinued growth in sales through e-commerce websites and mobile commerce applications, including through subscription services, the integration of physical and digital operations among retailers and the international expansion of hard discounters. We have seen and expect to continue to see a further shift to e-commerce, online-to-offline and other online purchasing by consumers. We continue to monitor changes in the retail landscape and seek to identify actions we may take to build our global e-commerce and digital capabilities, such as expanding our direct-to-consumer business, and distribute our products effectively through all existing and emerging channels of trade and potentially mitigate any unfavorable impacts on our future results.
DuringThe retail industry also continues to be impacted by the fourth quarteractions and increasing power of 2017, the TCJ Act was enactedretailers, including as a result consolidation of ownership resulting in the United States. The changeslarge retailers or buying groups with increased purchasing power, particularly in the TCJ Act are broadNorth America, Europe and complexLatin America. We have seen and weexpect to continue to examine thesee retailers and buying groups impact the TCJ Actour ability to compete in these jurisdictions. We continue to monitor our relationships with retailers and buying groups and seek to identify actions we may havetake to maintain mutually beneficial relationships and resolve any significant disputes and potentially mitigate any unfavorable impacts on our business and financialfuture results. Among its many provisions, the TCJ Act imposed a mandatory one-time transition tax on undistributed international earnings and reduced the U.S. corporate income tax rate from 35% to 21%. As a result of the enactment of the TCJ Act, we recognized a provisional net tax expense of $2.5 billion in the fourth quarter of 2017. See further information in “Items Affecting Comparability.” The recorded impact of
the TCJ Act is provisional and the final amount may differ from the above estimate, possibly materially, due to, among other things, changes in estimates, interpretations and assumptions we have made, changes in IRS interpretations, the issuance of new guidance, legislative actions, changes in accounting standards or related interpretations in response to the TCJ Act and future actions by states within the United States that have not currently adopted the TCJ Act. For additional information, see “Our Liquidity and Capital Resources,” “Our Critical Accounting Policies” and Note 5 to our consolidated financial statements.
See also “Item 1A. Risk Factors,” “Executive Overview” above and “Market Risks” below for more information about these risks and the actions we have taken to address key challenges.
Risk Management Framework
The achievement of our strategic and operating objectives involves taking risks, and that those risks maymany of which evolve over time. To identify, assess, prioritize, address, manage, monitor and communicate these risks across the Company’s operations and foster a corporate culture of integrity and risk awareness, we leverage an integrated risk management framework. This framework includes the following:
•PepsiCo’s Board of Directors has oversight responsibility for PepsiCo’s integrated risk management framework. One of the Board’s primary responsibilities is overseeing and interacting with senior management with respect to key aspects of the Company’s business, including risk assessment and risk mitigation of the Company’s top risks. Throughout the year, the Board and relevant Committees of the Board receive updates from management with respect to various enterprise risk
management issues and dedicate a portion of their meetings to reviewing and discussing specific risk topics in greater detail, including risks related to cybersecurity, food safety, sustainability, human capital management (including diversity, equity and inclusion) and supply chain and commodity inflation. The Board receives and provides feedback on regular updates from management regarding the Company’s top risks, including updates from members of management responsible for overseeing impacted areas (for example, the Chief Strategy and Transformation Officer and Chief Information Security Officer), governance processes associated with managing these risks, the status of projects to strengthen the Company’s risk mitigation efforts and recent incidents impacting the industry and threat landscape. Given that cybersecurity risks can impact various areas of responsibility of the Committees of the Board, the Board believes it is useful and effective for the full Board to maintain direct oversight over cybersecurity matters. In evaluating top risks, the Board and management consider short-, medium- and long-term potential impacts on the Company’s business, financial condition and results of operations, including looking at the internal and external environment when evaluating risks, risk amplifiers and emerging trends, and considers the risk horizon as part of prioritizing the Company’s risk mitigation efforts. The Board receives updates through presentations, memos and other written materials, teleconferences and other appropriate means of communication, with numerous opportunities for discussion and feedback, and continuously evaluates its approach in addressing top risks as circumstances evolve. For example, as part of risk updates to the Board and relevant Committees during 2023, the Board or its relevant Committee were provided updates on key risks throughout the year. In addition,impact of disruptive events, such as the Russia-Ukraine conflict, supply chain disruption and commodity inflation. The Board also receives periodic updates from external experts and advisers on global macroeconomic trends and conditions that may impact the Company’s strategy and financial performance, including geopolitical conflicts, economic instability, labor market trends, changing consumer behavior, retail disruption and digitalization.
The Board has tasked designated Committees of the Board with oversight of certain categories of risk management, and the Committees report to the Board regularly on these matters.
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◦ | The Audit Committee of the Board reviews and assesses the guidelines and policies governing PepsiCo’s risk management and oversight processes, and assists the Board’s oversight of financial, compliance and employee safety risks facing PepsiCo; |
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◦ | The Compensation Committee of the Board reviews PepsiCo’s employee compensation policies and practices to assess whether such policies and practices could lead to unnecessary risk-taking behavior; |
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◦ | The Nominating and Corporate Governance Committee assists the Board in its oversight of the Company’s governance structure and other corporate governance matters, including succession planning; and |
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◦ | The Public Policy and Sustainability Committee of the Board assists the Board in its oversight of PepsiCo’s policies, programs and related risks that concern key public policy and sustainability matters. |
◦The Audit Committee of the Board reviews and assesses the guidelines and policies governing PepsiCo’s risk management and oversight processes, and assists the Board’s oversight of financial, compliance and employee safety risks facing PepsiCo. The Audit Committee also assists the Board’s oversight of the Company’s compliance with legal and regulatory requirements and the Chief Compliance & Ethics Officer, who reports to the General Counsel, meets regularly with the Audit Committee, including in executive session without management present;
◦The Compensation Committee of the Board reviews PepsiCo’s employee compensation policies and practices to assess whether such policies and practices could lead to unnecessary risk-taking behavior;
◦The Nominating and Corporate Governance Committee assists the Board in its oversight of the Company’s governance structure and other corporate governance matters, including succession planning; and
◦The Sustainability, Diversity and Public Policy Committee of the Board assists the Board in its oversight of PepsiCo’s policies, programs and related risks that concern key sustainability (including climate change), diversity, equity and inclusion, and public policy matters.
•The PepsiCo Risk Committee (PRC), which is comprised of a cross-functional, geographically diverse, senior management group, including PepsiCo’s Chairman of the Board and Chief Executive Officer, meets regularly to identify, assess, prioritize and address top strategic, financial, operating, compliance, safety, reputational and other risks. The PRC is also
responsible for reporting progress on our risk mitigation efforts to the Board;Board and designated Committees. The PRC is comprised of a cross-functional, geographically diverse, senior management group, including PepsiCo’s Chairman of the Board of Directors and Chief Executive Officer, Chief Financial Officer, General Counsel, Sector Chief Executive Officers and the heads of Corporate Affairs, Human Resources, Research & Development, Information Technology, Sustainability, Strategy, Transformation, International Beverages, Commercial, Global Operations, Marketing and Financial Planning & Analysis;
•Division and key countrymarket risk committees, comprised of cross-functional senior management teams, meet regularly to identify, assess, prioritize and address division and country-specific business risks;
•PepsiCo’s Risk Management Office, which manages the overall risk management process, provides ongoing guidance, tools and analytical support to the PRC and the division and key country risk committees, identifies and assesses potential risks and facilitates ongoing communication between the parties, as well as with PepsiCo’s Board, of Directors and the Audit Committee of the Board and other Committees of the Board;
•PepsiCo’s CorporateInternal Audit Department evaluates the ongoing effectiveness of our key internal controls through periodic audit and review procedures; and
•PepsiCo’s Compliance & Ethics Department leads and coordinatesLaw Departments lead and coordinate our compliance policies and practices.
•PepsiCo’s Disclosure Committee, comprised of the General Counsel, Controller and heads of Internal Audit, Financial Planning & Analysis and Investor Relations, evaluates information from PepsiCo’s integrated risk management framework as part of the Disclosure Committee’s monitoring of the integrity and effectiveness of the Company’s disclosure controls and procedures. PepsiCo’s risk oversight processes and disclosure controls and procedures are designed to appropriately escalate key risks to the Board as well as to analyze potential risks for disclosure.
Market Risks
We are exposed to market risks arising from adverse changes in:
•commodity prices, affecting the cost of our raw materials and energy;
•foreign exchange rates and currency restrictions; and
•interest rates.
In the normal course of business, we manage commodity price, foreign exchange and interest rate risks through a variety of strategies, including productivity initiatives, global purchasing programs and hedging. Ongoing productivity initiatives involve the identification and effective implementation of meaningful cost-saving opportunities or efficiencies, including the use of derivatives. Our global purchasing programs include fixed-price contracts and purchase orders and pricing agreements. See “Uncertain or unfavorable economic conditions may have an adverse impact on our business, financial condition or results of operations.” and “Our business, financial condition or results of operations may be adversely affected by increased costs, disruption of supply or shortages of raw materials, energy, water and other supplies.” in “Item 1A. Risk Factors.” See “Our Liquidity and Capital Resources”Factors” for further information ondiscussion of our non-cancelable purchasing commitments.market risks.
The fair value of our derivatives fluctuates based on market rates and prices. The sensitivity of our derivatives to these market fluctuations is discussed below. See Note 9 to our consolidated financial statements for further discussion of these derivatives and our hedging policies. The fair value of our indefinite-lived intangible assets is impacted by changes in market conditions, including interest rates and inflationary, deflationary and recessionary conditions. See “Our Critical Accounting Policies”Policies and
Estimates” for a discussion of the exposure of our goodwill and other intangible assets and pension and retiree medical plan assets and liabilities to risks related to market fluctuations.
Inflationary, deflationary and recessionary conditions impacting these market risks also impact the demand for and pricing of our products. See “Item 1A. Risk Factors” for further discussion.
Commodity Prices
Our commodity derivatives had a total notional value of $0.9$1.7 billion as of December 30, 20172023 and $0.8$1.8 billion as ofDecember 31, 2016.2022. At the end of 2017,2023, the potential change in fair value of commodity derivative instruments, assuming a 10% decrease in the underlying commodity price, would have decreasedincreased our net unrealized gainslosses in 20172023 by $96 million.$157 million, which would generally be offset by a reduction in the cost of the underlying commodity purchases.
Foreign Exchange
Our operations outside of the United States generated 42%43% of our consolidated net revenue in 2017,2023, with Mexico, Canada, Russia, Canada,China, the United Kingdom, Brazil and BrazilSouth Africa, collectively, comprising approximately 20%25% of our consolidated net revenue in 2017.2023. As a result, we are exposed to foreign exchange risks in the international markets in which our products are made, manufactured, distributed or sold. Additionally, we are exposed to foreign exchange risk from net investments in foreign subsidiaries, foreign currency purchases, foreign currency assets and liabilities created in the normal course of business. During 2017,2023, unfavorable foreign exchange had a net nominal impact onreduced net revenue growth by 2 percentage points, primarily due to declines in the Russian ruble and Egyptian pound, Turkish lira and Pound sterling,partially offset by an appreciation inof the Russian ruble, Brazilian real and euro.Mexican peso. Currency declines against the U.S. dollar which are not offset could adversely impact our future financial results.
In addition, volatile economic, political and social conditions and civil unrest in certain markets in which our products are made, manufactured, distributed or sold, including in Argentina, Brazil, China, India, Mexico, the
Middle East, Pakistan, Russia, and Turkey and Ukraine, and currency controls or fluctuations in certain of these international markets, continue to, and the threat or imposition of new or increased tariffs or sanctions or other impositions in or related to these international markets may, result in challenging operating environments. We also continue to monitor the economic and political developments related to the United Kingdom’s pending withdrawal from the European Union, including how the United Kingdom will interact with other European Union countries following its departure, and the potential impact for the ESSA segment and our other businesses.
Starting in 2014, Russia announced economic sanctions against the United States and other nations that include a ban on imports of certain ingredients and finished goods from specific countries. These sanctions have not had and are not expected to have a material impact on the results of our operations in Russia or our consolidated results or financial position, and we will continue to monitor the economic, operating and political environment in Russia closely. For the years ended December 30, 2017, December 31, 2016 and December 26, 2015, net revenue generated by our operations in Russia represented 5%, 4% and 4% of our consolidated net revenue, respectively. As of December 30, 2017, our long-lived assets in Russia were $4.7 billion.
Our foreign currency derivatives had a total notional value of $1.6$3.8 billion as of December 30, 20172023 and December 31, 2016. The total notional amount of our debt instruments designated as net investment hedges was $1.5 billion as of December 30, 2017 and $0.8$3.0 billion as of December 31, 2016.2022. At the end of 2017,2023, we estimate that an unfavorable 10% change in the underlying exchange rates would have increased our net unrealized losses in 20172023 by $125 million.
Due to exchange restrictions and other conditions that$371 million, which would be significantly impact our ability to effectively manage our businessesoffset by an inverse change in Venezuela and realize earnings generated by our Venezuelan businesses, effective at the end of the third quarter of 2015, we deconsolidated our Venezuelan subsidiaries and began accounting for our investments in our Venezuelan subsidiaries and joint venture using the cost method of accounting. In 2015, we recorded pre- and after-tax charges of $1.4 billion in our income statement to reduce thefair value of the cost method investments to their estimated fair values, resulting in a full impairment. underlying exposure.
The factors that led tototal notional amount of our conclusions at the enddebt instruments designated as net investment hedges was $3.0 billion as of the third quarterDecember 30, 2023 and $2.9 billion as of 2015 continued to exist through the end of 2017, and we expect these conditions will continue for the foreseeable future.
We do not have any guarantees related to our Venezuelan entities, and our ongoing contractual commitments to our Venezuelan businesses are not material. We will recognize income from dividends and sales of inventory to our Venezuelan entities, which have not been and are not expected to be material, to the extent cash in U.S. dollars is received. We have not received any cash in U.S. dollars from our Venezuelan entities since our deconsolidation at the end of the third quarter of 2015. We continue to monitor the conditions in Venezuela and their impact on our accounting and disclosures. For further information, please refer to Note 1 to our consolidated financial statements and “Items Affecting Comparability.”December 31, 2022.
Interest Rates
Our interest rate derivatives had a total notional value of $14.2$1.3 billion as of December 30, 20172023 and $11.2 billion as of December 31, 2016.2022.Assuming year-end 20172023 investment levels and variable rate debt, a 1-percentage-point increase in interest rates would have decreased our net interest expense in 20172023 by $25$57 million due to higher cash and cash equivalents and short-term investments levels, as compared with our variable rate debt.
OUR FINANCIAL RESULTS
Results of Operations — Consolidated Review
InVolume
Physical or unit volume is one of the discussionskey metrics management uses internally to make operating and strategic decisions, including the preparation of net revenueour annual operating plan and the evaluation of our business performance. We believe volume provides additional information to facilitate the comparison of our historical operating profit below, “effective net pricing” reflectsperformance and underlying trends, and provides additional transparency on how we evaluate our business because it measures demand for our products at the year-over-year impactconsumer level. Unit volume growth adjusts for the impacts of discrete pricing actions, sales incentive activitiesacquisitions and mix resulting from selling varying products in different package sizes and in different countries and “net pricing” reflects the year-over-year combined impact of list price changes, weight changes per package, discounts and allowances. Additionally, “acquisitionsdivestitures. Acquisitions and divestitures,” except as otherwise noted, when used in this report, reflect all mergers and acquisitions activity, including the impact of acquisitions,as well as divestitures and other structural changes, including changes in ownership or control in consolidated subsidiaries and nonconsolidated equity investees. TheFurther, our fiscal 2022 results include an additional week (53rd reporting week). Unit volume growth excludes the impact of the structural change related53rd reporting week from 2022 results.
Beverage volume includes volume of concentrate sold to the deconsolidationindependent bottlers and volume of our Venezuelan businesses is presented separately.
Volume
Our beverage volume in the NAB, Latin America, ESSA and AMENA segments reflects sales to authorized bottlers, independent distributors and retailers, as well as the sale of beveragesfinished products bearing Company-ownedcompany-owned or licensed trademarks that have beenand allied brand products and joint venture trademarks sold throughby company-owned bottling operations. Beverage volume also includes volume of finished products bearing company-owned or licensed trademarks sold by our authorizednoncontrolled affiliates. Concentrate volume sold to independent bottlers. Bottler case sales (BCS) andbottlers is reported in concentrate shipments and equivalents (CSE), whereas finished beverage product volume is reported in bottler case sales (BCS). Both CSE and BCS convert all beverage volume to an 8-ounce-case metric. Typically, CSE and BCS are not necessarily equal duringin any given period due to seasonality, timing of product launches, product mix, bottler inventory practices and other factors. While our beverage revenues arenet revenue is not entirely based on BCS volume as there aredue to the independent bottlers in theour supply chain, we believe that BCS is a valuablebetter measure as it quantifiesof the sell-throughconsumption of our beverage products at the consumer level. Sales of products from our unconsolidated joint ventures are reflected in our reported volume. NAB, Latin America, ESSAproducts. PBNA, LatAm, Europe, AMESA and AMENA,APAC, either independently or in conjunction with third parties, make, market, distribute and sell ready-to-drink tea products through a joint venture with Unilever (under the Lipton brand name), and NAB further,PBNA, either independently or in conjunction with third parties, makes, markets, distributes and sells ready-to-drink coffee products through a joint venture with Starbucks. In addition, AMENA licenses the Tropicana brand for use in China on co-branded juice products in connection with a strategic alliance with Tingyi.
OurConvenient food and snacks volume in the FLNA, QFNA, Latin America, ESSAincludes volume sold by us and AMENA segments is reported on a system-wide basis, which includes our own sales and the sales by our noncontrolled affiliates of snacksconvenient food products bearing Company-ownedcompany-owned or licensed trademarks.
Servings
Since our divisions each use different measures of physical unit Internationally, we measure convenient food product volume (i.e., kilos, gallons, poundsin kilograms, while in North America we measure convenient food product volume in pounds. FLNA makes, markets, distributes and case sales),sells Sabra refrigerated dips and spreads through a common servings metric is necessary to reflect our consolidated physical unit volume. Our divisions’ physical volume measures are converted into servings based on U.S. Food and Drug Administration guidelines for single-serving sizes of our products.
In 2017, total servings decreased 1% compared to 2016. In 2016, total servings increased 3% compared to 2015. Excluding the impact of the 53rd reporting week in 2016, total servings in 2017 was evenjoint venture with the prior year and total servings in 2016 increased 2% compared to 2015. Servings growth reflects adjustments to the prior year results for divestitures and other structural changes, including the deconsolidation of our Venezuelan businesses effective as of the end of the third quarter of 2015.Strauss Group.
Consolidated Net Revenue and Operating Profit
| | | | | | | | | | Change |
| | 2017 | | 2016 | | 2015 | | 2017 | | 2016 | | 2023 | | 2022 | | Change |
| Net revenue | $ | 63,525 |
| | $ | 62,799 |
| | $ | 63,056 |
| | 1 | % | | — | % | Net revenue | $ | 91,471 | | | $ | | $ | 86,392 | | | 6 | | 6 | % |
| Operating profit | $ | 10,509 |
| | $ | 9,785 |
| | $ | 8,353 |
| | 7 | % | | 17 | % | Operating profit | $ | 11,986 | | | $ | | $ | 11,512 | | | 4 | | 4 | % |
| Operating profit margin | 16.5 | % | | 15.6 | % | | 13.2 | % | | 1.0 |
| | 2.3 |
|
| Operating margin | |
See “Results of Operations – Division Review” for a tabular presentation and discussion of key drivers of net revenue.
2017
Operating profit increased 7% andgrew 4% while operating margin improved 1.0declined 0.2 percentage points. Operating profit growth was primarily driven by the benefit of actions associated with our productivity initiatives, which contributed more than $1 billion in cost reductions across a number of expense categories, as well as effective net pricing. Items affecting comparability (see “Items Affecting Comparability”) also contributed 4 percentage points to operating profit growth and increased operating profit margin by 0.5 percentage points, primarily reflecting a prior-year impairment charge to reduce the value of our 5% indirect equity interest in TAB to its estimated fair value. Additionally, thepricing, productivity savings, an 11-percentage-point favorable impact of refranchising our beverage business in Jordan and a gainprior-year charges associated with the saleRussia-Ukraine conflict, and a 5-percentage-point favorable impact of our minority stake in Britvic each contributed 1 percentage pointprior-year impairment on intangible assets, investment and property, plant and equipment and other charges as a result of management’s decision to operating profit growth.reposition or discontinue the sale/
distribution of certain brands and to sell an investment (brand portfolio impairment charges). These impacts were partially offset by certain operating cost increases, a 26-percentage-point unfavorable impact of the prior-year gain associated with the Juice Transaction, a 22-percentage-point impact of higher commodity costs, a decrease in organic volume and unfavorable foreign exchange. Commodity inflation reduced operating profit growth by 6 percentage points, primarily attributable to inflation in the AMENA, Latin America, ESSA, NABhigher advertising and FLNA segments.marketing expenses. Corporate unallocated expenses (see Note 1reflect an increase in expenses related to our consolidated financial statements) decreased 9%, reflecting the impact ofongoing business initiatives and higher prior-year contributions to The PepsiCo Foundation, Inc. to fund charitable and social programs.
2016
Operating profit increased 17% and operating margin increased 2.3 percentage points. Operating profit growth was driven by The 53rd reporting week in the benefit of actions associated with our productivity initiatives, which contributed more than $1 billion in cost reductions across a number of expense categories, effective net pricing and volume growth. Additionally, the impact of recording an impairment charge in 2015 and ceasing the operations of our MQD joint venture contributed 1 percentage point to operating profit growth. These impacts were partially offset by certain operating cost increases, higher advertising and marketing expenses, unfavorable foreign exchange and higher commodity costs, as well as the deconsolidation of our Venezuelan businesses, which reduced operating profit growth by 2 percentage points. Items affecting comparability (see “Items Affecting Comparability”) contributed 13 percentage points to operating profit growth and increased operating profit margin by 1.5 percentage points, primarily reflecting a 17-percentage-point contribution from the 2015 Venezuela impairment charges. Higher commodity inflationprior year reduced operating profit growth by 1 percentage point,point.
The operating margin decline primarily attributable to inflation inreflects the Latin America, ESSA and AMENA segments,unfavorable impact of the prior-year gain associated with the Juice Transaction partially offset by deflation in the NAB, FLNAprior-year charges associated with the Russia-Ukraine conflict and QFNA segments. The impactthe brand portfolio impairment charges.
Other Consolidated Results
| | | | | | | | | | | | | | | | | |
| | 2023 | | 2022 | | Change |
| Other pension and retiree medical benefits income | $ | 250 | | | $ | 132 | | | $ | 118 | |
| Net interest expense and other | $ | 819 | | | $ | 939 | | | $ | (120) | |
| Annual tax rate | 19.8 | % | | 16.1 | % | | |
| Net income attributable to PepsiCo | $ | 9,074 | | | $ | 8,910 | | | 2 | % |
| Net income attributable to PepsiCo per common share – diluted | $ | 6.56 | | | $ | 6.42 | | | 2 | % |
Other pension and retiree medical benefits income increased $118 million, primarily reflecting prior-year settlement charges of our 53rd reporting week was fully offset by incremental investments we made in our business. Corporate unallocated expenses (see Note 1$318 million related to our consolidated financial statements) decreased 1%, driven by lower pension expense reflectingU.S. defined benefit plans. In addition, the change to the full yield curve approach, lower foreign exchange transaction losses and decreasesincrease in other corporate expenses,pension and retiree medical benefits income reflects lower amortization of net losses on pension obligations and a higher rate of expected return on plan assets, partially offset by increased contributions to The PepsiCo Foundation, Inc. to fund charitablehigher interest cost and social programs and the net impactrecognition of items affecting comparability mentioned above included in corporate unallocated expenses.fixed income losses on plan assets, all driven primarily by higher interest rates.
Other Consolidated Results
|
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | Change |
| | | 2017 | | 2016 | | 2015 | | 2017 | | 2016 |
| Net interest expense | | $ | (907 | ) | | $ | (1,232 | ) | | $ | (911 | ) | | $ | 325 |
| | $ | (321 | ) |
Annual tax rate (a) | | 48.9 | % | | 25.4 | % | | 26.1 | % | | | | |
| Net income attributable to PepsiCo | | $ | 4,857 |
| | $ | 6,329 |
| | $ | 5,452 |
| | (23 | )% | | 16 | % |
| Net income attributable to PepsiCo per common share – diluted | | $ | 3.38 |
| | $ | 4.36 |
| | $ | 3.67 |
| | (23 | )% | | 19 | % |
| Mark-to-market net impact | | (0.01 | ) | | (0.08 | ) | | — |
| | | | |
| Restructuring and impairment charges | | 0.16 |
| | 0.09 |
| | 0.12 |
| | | | |
Provisional net tax expense related to the TCJ Act (a) | | 1.70 |
| | — |
| | — |
| | | | |
| Charges related to the transaction with Tingyi | | — |
| | 0.26 |
| | 0.05 |
| | | | |
| Charge related to debt redemption | | — |
| | 0.11 |
| | — |
| | | | |
| Pension-related settlement charge/(benefits) | | — |
| | 0.11 |
| | (0.03 | ) | | | | |
| Venezuela impairment charges | | — |
| | — |
| | 0.91 |
| | | | |
| Tax benefit | | — |
| | — |
| | (0.15 | ) | | | | |
Net income attributable to PepsiCo per common share – diluted, excluding above items (b) | | $ | 5.23 |
| | $ | 4.85 |
|
| $ | 4.57 |
|
| 8 | % | | 6 | % |
| Impact of foreign exchange translation | | | | | | | | 1 |
| | 3 |
|
Growth in net income attributable to PepsiCo per common share – diluted, excluding above items, on �� a constant currency basis (b) | | | | | | | | 9 | % | | 9 | % |
(a) See Note 5 to our consolidated financial statements.
(b) See “Non-GAAP Measures.”
2017
Net interest expense and other decreased $325$120 million reflecting a prior-year charge of $233 million representing the premium paid in accordance with the “make-whole” redemption provisions to redeem all of our outstanding 7.900% senior notes due 2018 and 5.125% senior notes due 2019 for the principal amounts of $1.5 billion and $750 million, respectively. This decrease also reflects higher interest income, primarily due to higher interest rates andon average cash balances, as well as gains on the market value of investments used to economically hedge a portion of our deferred compensation liability. These impacts wereliability and higher average cash balances, partially offset by higher interest expense due torates on debt and higher average debt balances.
The reported tax rate increased 23.53.7 percentage points, primarily reflecting the prior-year adjustment to reserves for uncertain tax positions as a result of our agreement with the Internal Revenue Service (IRS) to settle one of the issues assessed in the 2014 to 2016 audit as well as the prior-year impact of the Juice Transaction.
Results of Operations — Division Review
See “Our Business Risks,” “Non-GAAP Measures” and “Items Affecting Comparability” for a discussion of items to consider when evaluating our results and related information regarding measures not in accordance with U.S. Generally Accepted Accounting Principles (GAAP).
In the discussions of net revenue and operating profit below, “effective net pricing” reflects the year-over-year impact of discrete pricing actions, sales incentive activities and mix resulting from selling varying products in different package sizes and in different countries.
Net Revenue and Organic Revenue Growth
Organic revenue growth is a non-GAAP financial measure. For further information on this measure, see “Non-GAAP Measures.”
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2023 |
| | | Impact of | | | | Impact of |
| Reported
% Change, GAAP Measure | | Foreign exchange translation | | Acquisitions and divestitures | | | | 53rd reporting week | | | | Organic % Change, Non-GAAP Measure(a) | | Organic volume(b) | | Effective net pricing |
| FLNA | 7 | % | | — | | | — | | | | | 2 | | | | | 9 | % | | (1) | | | 10 | |
QFNA (c) | (2) | % | | — | | | — | | | | | 2 | | | | | 1 | % | | (5) | | | 5 | |
| PBNA | 5 | % | | — | | | — | | | | | 1.5 | | | | | 7 | % | | (5) | | | 12 | |
| LatAm | 19 | % | | (9) | | | 1 | | | | | — | | | | | 11 | % | | (5) | | | 16 | |
| Europe | 4 | % | | 8 | | | 1 | | | | | — | | | | | 14 | % | | (2) | | | 16 | |
| AMESA | (5) | % | | 21 | | | 1 | | | | | — | | | | | 17 | % | | (2) | | | 20 | |
| APAC | — | % | | 4 | | | — | | | | | — | | | | | 4 | % | | (2) | | | 6 | |
| Total | 6 | % | | 2 | | | — | | | | | 1 | | | | | 9 | % | | (3) | | | 13 | |
(a)Amounts may not sum due to rounding.
(b)Excludes the impact of acquisitions and divestitures and the 53rd reporting week. In certain instances, the impact of organic volume on net revenue growth differs from the unit volume change disclosed in the following divisional discussions due to the impacts of product mix, nonconsolidated joint venture volume, and, for our franchise-owned beverage businesses, temporary timing differences between BCS and CSE. We report net revenue from our franchise-owned beverage businesses based on CSE. The volume sold by our nonconsolidated joint ventures has no direct impact on our net revenue.
(c)Net revenue decline was impacted by product returns related to the Quaker Recall by 2 percentage points, as well as cessation of sales of products as a result of the provisional net tax expense relatedQuaker Recall.
Operating Profit/(Loss), Operating Profit/(Loss) Adjusted for Items Affecting Comparability and Operating Profit/(Loss) Performance Adjusted for Items Affecting Comparability on a Constant Currency Basis
Operating profit/(loss) adjusted for items affecting comparability and operating profit/(loss) performance adjusted for items affecting comparability on a constant currency basis are both non-GAAP financial measures. For further information on these measures, see “Non-GAAP Measures” and “Items Affecting Comparability.”
Operating Profit/(Loss) and Operating Profit/(Loss) Adjusted for Items Affecting Comparability
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2023 |
| | | Items Affecting Comparability(a) | | |
| Reported, GAAP Measure | | Mark-to-market net impact | | Restructuring and impairment charges | | Acquisition and divestiture-related charges | | | | | | | | | | Impairment and other charges | | Product recall-related impact | | Core,
Non-GAAP Measure |
| FLNA | $ | 6,755 | | | $ | — | | | $ | 42 | | | $ | — | | | | | | | | | | | $ | — | | | $ | — | | | $ | 6,797 | |
| QFNA | 492 | | | — | | | — | | | — | | | | | | | | | | | — | | | 136 | | | 628 | |
| PBNA | 2,584 | | | — | | | 41 | | | 16 | | | | | | | | | | | 321 | | | — | | | 2,962 | |
| LatAm | 2,252 | | | — | | | 29 | | | — | | | | | | | | | | | 2 | | | — | | | 2,283 | |
| Europe | 767 | | | — | | | 223 | | | (2) | | | | | | | | | | | 855 | | | — | | | 1,843 | |
| AMESA | 807 | | | — | | | 15 | | | 2 | | | | | | | | | | | (7) | | | — | | | 817 | |
| APAC | 713 | | | — | | | 8 | | | — | | | | | | | | | | | 59 | | | — | | | 780 | |
| Corporate unallocated expenses | (2,384) | | | 36 | | | 88 | | | 25 | | | | | | | | | | | — | | | — | | | (2,235) | |
| Total | $ | 11,986 | | | $ | 36 | | | $ | 446 | | | $ | 41 | | | | | | | | | | | $ | 1,230 | | | $ | 136 | | | $ | 13,875 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2022 |
| | | Items Affecting Comparability(a) | | |
| Reported,
GAAP Measure | | Mark-to-market net impact | | Restructuring and impairment charges | | Acquisition and divestiture-related charges | | Gain associated with the Juice Transaction | | Impairment and other charges | | Core,
Non-GAAP Measure |
| FLNA | $ | 6,135 | | | $ | — | | | $ | 46 | | | $ | — | | | $ | — | | | $ | 88 | | | $ | 6,269 | |
| QFNA | 604 | | | — | | | 7 | | | — | | | — | | | — | | | 611 | |
| PBNA | 5,426 | | | — | | | 68 | | | 51 | | | (3,029) | | | 160 | | | 2,676 | |
| LatAm | 1,627 | | | — | | | 32 | | | — | | | — | | | 71 | | | 1,730 | |
| Europe | (1,380) | | | — | | | 109 | | | 14 | | | (292) | | | 2,932 | | | 1,383 | |
| AMESA | 666 | | | — | | | 12 | | | 3 | | | — | | | 190 | | | 871 | |
| APAC | 537 | | | — | | | 16 | | | — | | | — | | | 177 | | | 730 | |
| Corporate unallocated expenses | (2,103) | | | 62 | | | 90 | | | 6 | | | — | | | — | | | (1,945) | |
| Total | $ | 11,512 | | | $ | 62 | | | $ | 380 | | | $ | 74 | | | $ | (3,321) | | | $ | 3,618 | | | $ | 12,325 | |
(a)See “Items Affecting Comparability.”
Operating Profit/(Loss) Performance and Operating Profit/(Loss) Performance Adjusted for Items Affecting Comparability on a Constant Currency Basis
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2023 |
| | | | Impact of Items Affecting Comparability(a) | | | | Impact of | | |
| Reported % Change, GAAP Measure | | Mark-to-market net impact | | Restructuring and impairment charges | | Acquisition and divestiture-related charges | | | | Gain associated with the Juice Transaction | | | | | | | Impairment and other charges | | Product recall-related impact | | Core % Change, Non-GAAP Measure(b) | | Foreign exchange translation | | Core Constant Currency % Change, Non-GAAP Measure(b) |
| FLNA | 10 | % | | — | | | — | | | — | | | | | — | | | | | | | | (2) | | | — | | | 8 | % | | — | | | 9 | % |
| QFNA | (19) | % | | — | | | (1) | | | — | | | | | — | | | | | | | | — | | | 22 | | | 3 | % | | — | | | 3 | % |
| PBNA | (52) | % | | — | | | (0.5) | | | (1) | | | | | 61 | | | | | | | | 3 | | | — | | | 11 | % | | — | | | 11 | % |
| LatAm | 38 | % | | — | | | — | | | — | | | | | — | | | | | | | | (6) | | | — | | | 32 | % | | (13) | | | 19 | % |
| Europe | n/m | | — | | | n/m | | n/m | | | | n/m | | | | | | | n/m | | — | | | 33 | % | | 16 | | | 50 | % |
| AMESA | 21 | % | | — | | | 0.5 | | | — | | | | | — | | | | | | | | (28) | | | — | | | (6) | % | | 21 | | | 15 | % |
| APAC | 33 | % | | — | | | (2) | | | — | | | | | — | | | | | | | | (24) | | | — | | | 7 | % | | 4 | | | 11 | % |
| Corporate unallocated expenses | 13 | % | | 5 | | | — | | | (3.5) | | | | | — | | | | | | | | — | | | — | | | 15 | % | | — | | | 15 | % |
| Total | 4 | % | | — | | | 0.5 | | | — | | | | | 26 | | | | | | | | (19) | | | 1 | | | 13 | % | | 2 | | | 15 | % |
(a)See “Items Affecting Comparability.”
(b)Amounts may not sum due to rounding.
n/m - Not meaningful due to the TCJ Act, which contributed 26 percentage points to the increase,impact of impairment and other charges, resulting in an operating loss in 2022.
FLNA
Net revenue grew 7%, primarily driven by effective net pricing, partially offset by the impact of the 53rd reporting week in the prior year, which reduced net revenue by 2 percentage points.
Unit volume decreased 1%, primarily driven by a high-single-digit decline in dips, a mid-single-digit decline in trademark Tostitos and a low-single-digit decline in trademark Lay’s, partially offset by double-digit growth in Sunchips and mid-single-digit growth in trademark Cheetos.
Operating profit increased 10%, primarily reflecting the effective net pricing, productivity savings and a 2-percentage-point favorable impact of prior-year impairment charge to reduce the value of our 5% indirect equity interest in TAB to its estimated fair value, which had no corresponding tax benefit, as well as thecharges associated with a baked fruit convenient food brand. These impacts were partially offset by certain operating cost increases, including strategic initiatives, and a 10-percentage-point impact of recognizing excess tax benefitshigher commodity costs, primarily cooking oil, seasoning ingredients and potatoes. The 53rd reporting week in the provision for income taxesprior year reduced operating profit growth by 2 percentage points.
QFNA
Net revenue declined 2%, primarily driven by a decrease in organic volume and a 2-percentage-point negative impact of the 53rd reporting week in the prior year, partially offset by effective net pricing. The organic volume decline and effective net pricing collectively included a 2-percentage-point negative impact of the product returns from the Quaker Recall and was negatively impacted by cessation of sales of products as a result of the changesQuaker Recall.
Unit volume declined 5% primarily reflecting a high-single-digit decline in accounting foroatmeal, a double-digit decline in bars, a high-single-digit decline in rice/pasta sides and a low-single-digit decline in ready-to-eat cereals. The unit volume decline in bars and ready-to-eat cereals was negatively impacted by the Quaker Recall.
Operating profit declined 19%, reflecting a 22-percentage-point impact of product returns and charges associated with the Quaker Recall, certain aspectsoperating cost increases, the decrease in organic volume, a 9-percentage-point impact of share-based payments to employeeshigher commodity costs, higher advertising and marketing expenses and a 2-percentage-point unfavorable impact of the 53rd reporting week in the currentprior year. See Note 2 and Note 5 to our consolidated financial statements for additional information.
Net income attributable to PepsiCo and net income attributable to PepsiCo per common share both decreased 23%. Items affecting comparability (see “Items Affecting Comparability”) negatively impacted both net income attributable to PepsiCo and net income attributable to PepsiCo per common share by 30 percentage points, primarily as a result of the provisional net tax expense related to the TCJ Act.
2016
Net interest expense increased $321 million reflecting a charge of $233 million representing the premium paid in accordance with the “make-whole” redemption provisions to redeem all of our outstanding 7.900% senior notes due 2018 and 5.125% senior notes due 2019 for the principal amounts of $1.5 billion and $750 million, respectively. This increase also reflects higher average debt balances,These impacts were partially offset by higher interest incomeeffective net pricing and productivity savings.
In 2024, unit volume, net revenue and operating profit will continue to be negatively impacted by the Quaker Recall due to higher average cash balances, as well as gains onlower sales and additional charges.
PBNA
Net revenue increased 5%, primarily driven by effective net pricing, partially offset by a decrease in organic volume. The 53rd reporting week in the market value of investments used to economically hedgeprior year reduced net revenue growth by 1.5 percentage points.
Unit volume decreased 5%, driven by a portion of6% decrease in non-carbonated beverage (NCB) volume and a 4% decrease in CSD volume. The NCB volume decrease primarily reflected high-single-digit decreases in Gatorade sports drinks and our deferred compensation liability.overall water portfolio.
The reported tax rateOperating profit decreased 0.7 percentage points due to52%, primarily reflecting the unfavorable impact of the 2015 Venezuelaprior-year gain of $3.0 billion associated with the Juice Transaction and the current-year impairment charges which had no corresponding tax benefit,of $321 million related to our TBG investment, partially offset by the 2015prior-year impairment and other related charges of $160 million associated with our decision to terminate the agreement with Vital Pharmaceuticals, Inc. to distribute Bang energy drinks. Operating profit also decreased due to certain operating cost increases, the decrease in organic volume, an 18-percentage-point impact of higher commodity costs, primarily sweeteners and energy, a 5-percentage-point unfavorable impact due to a prior-year gain on an asset sale and higher advertising and marketing expenses. Additionally, operating profit performance reflects a 2-percentage-point unfavorable impact of the 53rd reporting week in the prior year. These impacts were partially offset by the effective net pricing and productivity savings.
LatAm
Net revenue increased 19%, primarily reflecting effective net pricing and a 9-percentage-point impact of favorable resolutionforeign exchange, partially offset by a net organic volume decline.
Convenient foods unit volume declined 4%, primarily reflecting a double-digit decline in Colombia. Additionally, Mexico and Brazil experienced low-single-digit declines.
Beverage unit volume grew 3%, primarily reflecting low-single-digit growth in Mexico and mid-single-digit growth in Guatemala and Colombia, partially offset by a mid-single-digit decline in Argentina. Additionally, Chile experienced slight growth and Brazil experienced low-single-digit growth.
Operating profit increased 38%, primarily reflecting the effective net pricing, productivity savings, a 13-percentage-point impact of favorable foreign exchange and a 6-percentage-point favorable impact of a
prior-year impairment and other charges associated with the IRSsale of substantially all open matterscertain non-strategic brands. These impacts were partially offset by certain operating cost increases, the net organic volume decline, an 11-percentage-point impact of higher commodity costs, primarily potatoes, sweeteners and other ingredients and higher advertising and marketing expenses.
Europe
Net revenue increased 4%, primarily reflecting effective net pricing, partially offset by an 8-percentage-point impact of unfavorable foreign exchange and an organic volume decline.
Convenient foods unit volume decreased slightly, primarily reflecting a high-single-digit decline in the United Kingdom, a double-digit decline in Spain, a mid-single-digit decline in France and a low-single-digit decline in the Netherlands, partially offset by double-digit growth in Russia and high-single-digit growth in Turkey.
Beverage unit volume declined 3%, primarily reflecting a double-digit decline in Germany, a high-single-digit decline in France and a low-single-digit decline in Russia, partially offset by double-digit growth in Turkey. Additionally, the United Kingdom experienced a low-single-digit decline.
Operating profit improvement primarily reflects the favorable impact of prior-year charges associated with the Russia-Ukraine conflict and impairment of intangible assets related to the audits for taxable years 2010repositioning or discontinuation of certain juice and 2011, as well asdairy brands in Russia (brand portfolio impairment charges) and the 2016favorable impact of lower impairment charge recordedcharges related to reduce the valueSodaStream business (other impairment charges), partially offset by the unfavorable impact of our 5% indirect equity interest in TAB to its estimated fair value, which had no corresponding tax benefit. the prior-year gain associated with the Juice Transaction. Operating profit improvement also reflects the effective net pricing and productivity savings. These impacts were partially offset by certain operating cost increases, a 54-percentage-point impact of higher commodity costs, primarily sweeteners, packaging and potatoes, a 16-percentage-point impact of unfavorable foreign exchange, higher advertising and marketing expenses and the organic volume decline.
AMESA
Net income attributablerevenue declined 5%, primarily reflecting a 21-percentage-point impact of unfavorable foreign exchange, driven primarily by the weakening of the Egyptian pound, and a net organic volume decline, partially offset by effective net pricing.
Convenient foods unit volume declined 3.5%, primarily reflecting a high-single-digit decline in South Africa, partially offset by high-single-digit growth in the Middle East and low-single-digit growth in Pakistan. Additionally, India experienced a low-single-digit decline.
Beverage unit volume grew 2%, primarily reflecting double-digit growth in India and low-single-digit growth in the Middle East, partially offset by a double-digit decline in Pakistan and a low-single-digit decline in Nigeria.
Operating profit grew 21%, primarily reflecting a 24-percentage-point favorable impact of impairment and other charges associated with our decision to PepsiCo increased 16%sell or discontinue certain non-strategic brands and an investment in the prior year (brand portfolio impairment charges), a 4-percentage-point favorable impact of impairment charges primarily related to certain juice brands from the Pioneer Food Group Ltd. (Pioneer Foods) acquisition in the prior year (other impairment charges), the effective net income attributablepricing and productivity savings. These impacts were partially offset by a 70-percentage-point impact of higher commodity costs, primarily packaging materials, sweeteners and grains, largely driven by transaction-related foreign exchange, certain operating cost increases and a 21-percentage-point impact of unfavorable foreign exchange, primarily due to PepsiCo per common share increased 19%. Items affecting comparability (see “Items Affecting Comparability”) positively contributed 12 percentage pointsweakening of the Egyptian pound.
APAC
Net revenue grew slightly, primarily reflecting effective net pricing, partially offset by a 4-percentage-point impact of unfavorable foreign exchange and a net organic volume decline.
Convenient foods unit volume declined 2%, primarily reflecting a double-digit decline in Thailand and a low-single-digit decline in Australia, partially offset by low-single-digit growth in China.
Beverage unit volume grew 2.5%, primarily reflecting mid-single-digit growth in China, high-single-digit growth in Thailand and low-single-digit growth in Vietnam, partially offset by a mid-single-digit decline in the Philippines.
Operating profit grew 33%, primarily reflecting a 23-percentage-point favorable impact of lower impairment charges related to the Be & Cheery brand (other impairment charges), the effective net income attributable to PepsiCopricing and 13 percentage points toproductivity savings. These impacts were partially offset by certain operating cost increases, higher advertising and marketing expenses, the net income attributable to PepsiCo per common share.organic volume decline, a 5-percentage-point impact of higher commodity costs and a 4-percentage-point impact of unfavorable foreign exchange.
Non-GAAP Measures
Certain financial measures contained in this Form 10-K adjust for the impact of specified items and are not in accordance with U.S. Generally Accepted Accounting Principles (GAAP).GAAP. We use non-GAAP financial measures internally to make operating and strategic decisions, including the preparation of our annual operating plan, evaluation of our overall business performance and as a factor in determining compensation for certain employees. We believe presenting non-GAAP financial measures in this Form 10-K provides additional information to facilitate comparison of our historical operating results and trends in our underlying operating results and provides additional transparency on how we evaluate our business. We also believe presenting these measures in this Form 10-K allows investors to view our performance using the same measures that we use in evaluating our financial and business performance and trends.
We consider quantitative and qualitative factors in assessing whether to adjust for the impact of items that may be significant or that could affect an understanding of our ongoing financial and business performance or trends. Examples of items for which we may make adjustments include: amounts related to mark-to-market gains or losses (non-cash); charges related to restructuring programs;plans; charges associated with acquisitions and divestitures; gains associated with divestitures; asset impairment charges (non-cash); product recall-related impact; pension and retiree medical-related amounts, including all settlement and curtailment gains and losses; charges or adjustments related to the enactment of new laws, rules or regulations, such as significant tax law changes; gains or losses associated with mergers, acquisitions, divestitures and other structural changes; debt redemptions; pension and retiree medical related items; amounts related to the resolution of tax positions; asset impairments (non-cash);tax benefits related to reorganizations of our operations; debt redemptions, cash tender or exchange offers; and remeasurements of net monetary assets. Prior to the fourth quarter of 2021, certain immaterial pension and retiree medical-related settlement and curtailment gains and losses were not considered items affecting comparability. Pension and retiree medical-related service cost, interest cost, expected return on plan assets, and other net periodic pension costs continue to be reflected in our core results. See below and “Items Affecting Comparability” for a description of adjustments to our U.S. GAAP financial measures in this Form 10-K.
Non-GAAP information should be considered as supplemental in nature and is not meant to be considered in isolation or as a substitute for the related financial information prepared in accordance with U.S. GAAP. In addition, our non-GAAP financial measures may not be the same as or comparable to similar non-GAAP measures presented by other companies.
The following non-GAAP financial measures are contained in this Form 10-K:10-K are discussed below:
costCost of sales, gross profit, selling, general and administrative expenses, gain associated with the Juice Transaction, impairment of intangible assets, other pension and retiree medical benefits income, net interest expense and other, provision for income taxes, net income attributable to noncontrolling interests and provision fornet income taxes,attributable to PepsiCo, each adjusted for items affecting comparability;
comparability, operating profit/loss, adjusted for items affecting comparability,profit and net income attributable to PepsiCo per common share – diluted, each adjusted for items affecting comparability, and the corresponding constant currency growth rates;rates
organic revenue;
free cash flow; and
return on invested capital (ROIC) and net ROIC, excluding items affecting comparability.
Cost of Sales, Gross Profit, Selling, General and Administrative Expenses, Interest Expense, Noncontrolling Interests and Provision for Income Taxes, Adjusted for Items Affecting Comparability; Operating Profit/Loss, Adjusted for Items Affecting Comparability, and Net Income Attributable to PepsiCo per Common Share – Diluted, Adjusted for Items Affecting Comparability, and the Corresponding Constant Currency Growth Rates
Cost of sales, gross profit, selling, general and administrative expenses, interest expense, noncontrolling interests and provision for income taxes, adjusted for items affecting comparability; operating profit/loss, adjusted for items affecting comparability, and net income attributable to PepsiCo per common share – diluted, adjusted for items affecting comparability,These measures exclude the net impact of mark-to-market gains and losses on centrally managed commodity derivatives that do not qualify for hedge accounting, restructuring and impairment charges related to our 20142019 Multi-Year Productivity Plan (2019 Productivity Plan), charges associated with our acquisitions and 2012 Productivity Plans, a provisional net tax expensedivestitures, the gain associated with the enactmentJuice Transaction, impairment and other charges comprised of Russia-Ukraine conflict charges, brand portfolio impairment charges and other impairment charges, product recall-related impact, the TCJ Act, chargesimpact of settlement and curtailment gains and losses related to the transaction with Tingyi,pension and retiree medical plans, a charge related to debt redemption, pension-related settlements, Venezuela impairment chargescash tender offers, tax benefit related to the IRS audit and a tax benefitexpense related to the Tax Cuts and Jobs Act (TCJ Act) (see “Items Affecting Comparability” for a detailed description of each of these items). We also evaluate performance on operating profit/loss, adjusted for items affecting comparability,profit and net income attributable to PepsiCo per common share – diluted, each adjusted for items affecting comparability, on a constant currency basis, which measure our financial results assuming constant foreign currency exchange rates used for translation based on the rates in effect for the comparable prior-year period. In order to compute our constant currency results, we multiply or divide, as appropriate, our current yearcurrent-year U.S. dollar results by the current yearcurrent-year average foreign exchange rates and then multiply or divide, as appropriate, those amounts by the prior-year average foreign exchange rates. We believe these measures provide useful information in evaluating the results of our business because they exclude items that we believe are not indicative of our ongoing performance.performance or that we believe impact comparability with the prior year.
Organic Revenuerevenue growth
We define organic revenue growth as net revenue adjusteda measure that adjusts for the impactimpacts of foreign exchange translation, acquisitions and divestitures, and every five or six years, the impact of the 53rd reporting week, including in our 2022 financial results. Adjusting for acquisitions and divestitures reflects mergers and acquisitions activity, as well as the impact from acquisitions, divestitures and other structural changes, including the Venezuela deconsolidation, for the comparable period. The Venezuela deconsolidation impact excluded the results of our Venezuelan businesses for the first three quarters of 2015. In addition, our fiscal 2016 reported results included an extra week of results. Organic revenue excludes the impact of the 53rd reporting weekchanges in the fourth quarter of 2016.
ownership or control in consolidated subsidiaries and nonconsolidated equity investees. We believe organic revenue growth provides useful information in evaluating the results of our business because it excludes items that we believe are not indicative of ongoing performance or that we believe impact comparability with the prior year.
See “Organic“Net Revenue and Organic Revenue Growth” in “Results of Operations – Division Review.”Review” for further information.
Free Cash Flowcash flow
We define free cash flow as net cash provided byfrom operating activities less capital spending, plus sales of property, plant and equipment. Since net capital spending is essential to our product innovation initiatives and maintaining our operational capabilities, we believe that it is a recurring and necessary use of cash. As such, we believe investors should also consider net capital spending when evaluating our cash from operating
activities. Free cash flow is used by us primarily for acquisitions and financing activities, including debt repayments, dividends and share repurchases. Free cash flow is not a measure of cash available for discretionary expenditures since we have certain non-discretionary obligations such as debt service that are not deducted from the measure.
See “Free Cash Flow” in “Our Liquidity and Capital Resources.”Resources” for further information.
Return on invested capital (ROIC) and net ROIC, and Net ROIC, Excluding Items Affecting Comparabilityexcluding items affecting comparability
We define ROIC as net income attributable to PepsiCo plus interest expense after-tax divided by the sum of quarterly average debt obligations and quarterly average common shareholders’ equity. Although ROIC is a common financial metric, numerous methods exist for calculating ROIC. Accordingly, the method used by management to calculate ROIC may differ from the methods other companies use to calculate their ROIC.
We believe this metric serves as a measure of how well we use our capital to generate returns. In addition, we use net ROIC, excluding items affecting comparability, to compare our performance over various reporting periods on a consistent basis because it removes from our operating results the impact of items that we believe are not indicative of our ongoing performance and reflects how management evaluates our operating results and trends. We define net ROIC, excluding items affecting comparability, as ROIC, adjusted for quarterly average cash, cash equivalents and short-term investments, after-tax interest income and items affecting comparability. We believe the calculation of ROIC and net ROIC, excluding items affecting comparability, provides useful information to investors and is an additional relevant comparison of our performance to consider when evaluating our capital allocation efficiency.
See “Return on Invested Capital” in “Our Liquidity and Capital Resources.”Resources” for further information.
Items Affecting Comparability
Our reported financial results in this Form 10-K are impacted by the following items in each of the following years:
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| | | 2023 |
| | | Cost of sales | | Gross profit | | Selling, general and administrative expenses | | | | Impairment of intangible assets | | | | Operating profit | | | | Other pension and retiree medical benefits income | | | | Provision for income taxes(a) | | Net income attributable to noncontrolling interests | | Net income attributable to PepsiCo |
| Reported, GAAP Measure | | | $ | 41,881 | | | $ | 49,590 | | | $ | 36,677 | | | | | $ | 927 | | | | | $ | 11,986 | | | | | $ | 250 | | | | | $ | 2,262 | | | $ | 81 | | | $ | 9,074 | |
| Items Affecting Comparability | | | | | | | | | | | | | | | | | | | | | | |
| Mark-to-market net impact | | | (3) | | | 3 | | | (33) | | | | | — | | | | | 36 | | | | | — | | | | | 9 | | | — | | | 27 | |
| Restructuring and impairment charges | | | (13) | | | 13 | | | (433) | | | | | — | | | | | 446 | | | | | (1) | | | | | 96 | | | 1 | | | 348 | |
| Acquisition and divestiture-related charges | | | — | | | — | | | (41) | | | | | — | | | | | 41 | | | | | — | | | | | 18 | | | — | | | 23 | |
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| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Impairment and other charges | | | 5 | | | (5) | | | (308) | | | | | (927) | | | | | 1,230 | | | | | — | | | | | 284 | | | — | | | 946 | |
| Product recall-related impact | | | (136) | | | 136 | | | — | | | | | — | | | | | 136 | | | | | — | | | | | 32 | | | — | | | 104 | |
| Pension and retiree medical-related impact | | | — | | | — | | | — | | | | | — | | | | | — | | | | | 14 | | | | | 3 | | | — | | | 11 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
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| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Core, Non-GAAP Measure | | | $ | 41,734 | | | $ | 49,737 | | | $ | 35,862 | | | | | $ | — | | | | | $ | 13,875 | | | | | $ | 263 | | | | | $ | 2,704 | | | $ | 82 | | | $ | 10,533 | |
| | | | 2017 |
| | Cost of sales | | Gross profit | | Selling, general and administrative expenses | | Operating profit | | Provision for income taxes(a) | | Net income attributable to PepsiCo |
| 2022 | |
| 2022 | |
| 2022 | |
| Cost of sales | | | Cost of sales | | Gross profit | | Selling, general and administrative expenses | | Gain associated with the Juice Transaction | | Impairment of intangible assets | | Operating profit | | Other pension and retiree medical benefits income | | | | | | Provision for income taxes(a) | | Net income attributable to noncontrolling interests | | Net income attributable to PepsiCo |
| Reported, GAAP Measure | $ | 28,785 |
| | $ | 34,740 |
| | $ | 24,231 |
| | $ | 10,509 |
| | $ | 4,694 |
| | $ | 4,857 |
|
| Items Affecting Comparability | | | | | | | | | | | |
| Mark-to-market net impact | 8 |
| | (8 | ) | | 7 |
| | (15 | ) | | (7 | ) | | (8 | ) |
| Mark-to-market net impact | |
| Mark-to-market net impact | |
| Restructuring and impairment charges | — |
| | — |
| | (295 | ) | | 295 |
| | 71 |
| | 224 |
|
| Provisional net tax expense related to the TCJ Act | — |
| | — |
| | — |
| | — |
| | (2,451 | ) | | 2,451 |
|
| Acquisition and divestiture-related charges | |
| Gain associated with the Juice Transaction | |
| Impairment and other charges | |
| Pension and retiree medical-related impact | |
| Tax benefit related to the IRS audit | |
| Tax expense related to the TCJ Act | |
| | Core, Non-GAAP Measure | $ | 28,793 |
| | $ | 34,732 |
| | $ | 23,943 |
| | $ | 10,789 |
| | $ | 2,307 |
| | $ | 7,524 |
|
| | Core, Non-GAAP Measure | |
| | Core, Non-GAAP Measure | |
