PepsiCo, Inc. 1999 Annual Report

Click here to download the 1999 Annual Report as a PDF file.

The PepsiCo associates on our cover have a lot to smile about these days. Thanks to them and our colleagues around the world, we had a terrific 1999.

Every one of our five operating divisions posted growth in revenue, volume and operating profit. Every one generated excess cash. And nearly every one gained market share. On a pro forma basis, we posted revenue growth of 6% in snacks, 4% in beverages and 10% in juices. Operating profits grew 11% in snacks, 2% in beverages and a whopping 55% in juices. Our cash provided by operations totaled $3 billion and our return on invested capital was a very healthy 20%.

As the numbers show, PepsiCo today is lean and strong. Even better, we're focused squarely on three great businesses full of opportunity: Frito-Lay snacks, Pepsi-Cola beverages and Tropicana juices.

It's no accident. We've transformed PepsiCo with the goal of being one of the world's very best and fastest growing consumer products companies — a premier performer delivering healthy, consistent financial results quarter after quarter, year after year.

And we've come a long way. Just look at how our numbers today compare with four years ago:

Sales are more than one-third lower, yet earnings are higher;

Operating free cash flow of $2 billion is also higher;

Return on invested capital has risen from about 15% to 20%;

Operating profit margin has risen from 10% to 15%;

Shifting to less capital-intensive businesses has reduced our capital spending from 6.9% of sales to 5.5%;

Net debt has been reduced from $8 billion to $2 billion.

During those four years we returned $10.6 billion to shareholders — $7.6 billion in share repurchases plus $3 billion in dividends.

And I'd add that in that time we've become arguably the single most important supplier to U.S. retailers in terms of their sales growth, profit and cash flow.

So why didn't our stock reflect our progress? It's a point of great frustration for me, and I'm sure for you as well. I believe we're doing the right things both strategically and financially. Our earnings met or beat Wall Street expectations in every quarter of 1999. Virtually every securities analyst who covers us rates PepsiCo a "buy." And we outpaced our food and beverage peers.

For all that, though, consumer products companies have been out of favor with investors. To me that's not an excuse, it's a challenge. It means we must work even harder to tell our story. And with our transformation complete, I plan to devote a lot more time to showing investors exactly why PepsiCo is a financial gem well capable of double-digit profit growth, strong cash flow and a return on invested capital above 20%.

It's a challenge I welcome. In fact, I've never been more optimistic about PepsiCo — not just because our financial picture is so much brighter, but also because today this company and the consumer are absolutely in sync. We're sharply focused on meeting the demand for convenient foods and drinks. It's a global opportunity measured in the hundreds of billions of dollars. And it's growing.

From Mexico to Miami to Malaysia, people are pressed for time, so they're eating fewer traditional meals and snacking more. They want convenient food that tastes great.

That puts PepsiCo right in the "sweet spot" of the food and beverage arena — the center of growth today and in the future. That's crucial if you want to stand out among premier companies.

Which gets me to an important question: What exactly is it that enables the best consumer product companies to grow year in and year out?

It seems to me the great companies share five basic qualities:

Leadership market positions
Strong, well-recognized brands
Good growth prospects
Globally diverse portfolios
Advantaged business systems.

Today PepsiCo measures up well on all of these. Let me show you.

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