What’s behind PepsiCo’s Improved Margins in 1Q15?
Highlights of PepsiCo's 1Q15 Results: Top Line Disappoints (Part 3 of 5)
1Q15 margins
PepsiCo’s (PEP) gross margins increased by 100 basis points to 55.5% in 1Q15 from 54.5% in 1Q14. Its operating margins improved by 40 basis points to 14.7% in 1Q15 from 14.3% in the same quarter last year.
What drove the margins?
The company’s Frito-Lay North America and PepsiCo Americas Beverages segments benefited from lower commodity costs. Effective revenue management strategies and productivity initiatives were key reasons for PepsiCo’s improved margins.
However, the company’s operating profit declined by 0.6% to $1.8 billion in 1Q15, due to unfavorable foreign exchange translation, restructuring and impairment charges of $36 million, and the mark-to-market impact on commodity hedges. In 2015, the company’s margins are expected to be impacted by low to mid single-digit commodity inflation, including the estimated impact of transaction-related foreign exchange.
PepsiCo aims to deliver annual productivity savings of $1 billion through 2019, through several initiatives including manufacturing automation, manufacturing footprint optimization, utilizing shared services, and simplifying its organization structure.
Coca-Cola’s (KO) operating margin declined to 21.4% in 1Q15 from 22.5% in the same quarter the previous year, due to currency headwinds. Dr Pepper Snapple’s (DPS) operating margin for 1Q15 remained unchanged at 18.6%.
PepsiCo, Coca-Cola, and Dr Pepper Snapple together account for ~0.8% of the iShares MSCI ACWI ETF (ACWI) and 1.7% of the portfolio holdings of the iShares Core S&P 500 ETF (IVV).
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