* Full Year Operating Cash Flow up 14% PURCHASE, N.Y., Feb. 7 /PRNewswire-FirstCall/ -- PepsiCo (NYSE: PEP) reported continued strong operating performance in the fourth quarter of 2007. Net revenue increased 17% in the quarter and reported operating profit increased 9%; core division operating profit, excluding restructuring items, increased 11%. Reported EPS was $0.77 including the impact of restructuring actions and certain tax benefits; excluding these items, core EPS was $0.80. For the year, net revenue increased 12%, reported operating profit and core division operating profit both grew 10% and core EPS grew 13% to $3.38; reported EPS of $3.41 grew 2%, largely reflecting the lapping of tax benefits in 2006. PepsiCo Chairman and CEO Indra Nooyi said, "Our strong top- and bottom-line results in 2007 once again demonstrated the balance and strength of our global portfolio. All of our segments posted solid results for the year." "As we begin 2008, I am confident we have the right strategies in place to deliver full year performance consistent with our long-term profit guidance," Ms. Nooyi continued. "Our brands are some of the best loved trademarks in the world, and we're continually adding to their vitality through exceptional innovation and unmatched go-to-market execution. We will fully leverage these advantages -- together with enhanced productivity across the business system and effective net pricing -- to address the challenge of accelerating input cost inflation. The new organization is ready to take the best of PepsiCo across our divisions and geographies to generate profitable growth, expand our global footprint and make Performance with Purpose the driving force behind everything we do." FULL YEAR 2007 RESULTS PepsiCo grew worldwide revenue 12% for the full year, driven by snack volume growth of 6% and beverage volume growth of 4%. PepsiCo International (PI) led volume growth with 9% snack growth and 8% beverage growth. Frito-Lay North America (FLNA) delivered 3% volume growth driven by strong momentum in Doritos and the Smart Spot eligible products. Volume in PepsiCo Beverages North America (PBNA) was flat compared with the prior year. Each of the divisions utilized a combination of pricing and mix to balance commodity cost inflation, while maintaining top-line momentum. Core division operating profit was up 10%, with every division contributing to profit growth for the year. Strong profit performance allowed PepsiCo to make important investments to drive future marketplace growth and system transformation. Foreign currency translation contributed about 2 points of growth to net revenue and operating profit. Acquisitions and divestitures added 3 points to net revenue and had no impact on operating profit. For the full year, the reported tax rate was 25.9%; the comparable tax rate was 27.6%. Cash from operations was $6.9 billion, up 14%, and net capital expenditures were $2.4 billion. Management operating cash flow grew 12% to $4.6 billion. Cash returned to shareholders was up 34%, comprised of $2.2 billion in dividends and $4.3 billion in share repurchases. ITEMS AFFECTING COMPARABILITY OF RESULTS The following table presents the 2007 growth rates and shows division operating profit on an "as reported" and "core" basis, which excludes the impact of both the previously announced plant closings and production line rationalizations (about $0.03 per share) as well as costs associated with the recent divisional reorganization ($0.01 per share). In the fourth quarter, the Company recorded a pre-tax charge of $102 million related to these restructuring actions. EPS is also shown "as reported" and "core," with the latter excluding the impact of both restructuring charges and certain tax items. In the third quarter, the Company reported non-cash tax benefits totaling $115 million related to the resolution of certain foreign tax matters and an additional non-cash tax benefit of $14 million related to the same matter in the fourth quarter. The Company believes the core results are more indicative of the Company's ongoing results. The impact on division operating results of the restructuring actions are summarized on the accompanying schedule A-10. The following discussion of division operating results excludes the impact of these actions. Frito-Lay North America (FLNA) revenue and operating profit growth continued strong. Net revenue increased 8% in the fourth quarter, driven by 3% volume growth and effective net pricing. Revenue growth was led by double-digit growth in SunChips, multipacks and dips. Trademark Lay's and Doritos grew revenue mid- single-digits. For the quarter, our portfolio of savory snacks continued to gain both volume and value share. The Quaker snacks portfolio grew revenue double-digits, led by Chewy Granola bars and Quakes Rice Cakes. Operating profit grew 7%, reflecting the revenue gains, partially offset by higher commodity costs and double-digit increases in marketing investments. PepsiCo Beverages North America (PBNA) non-carbonated beverages drove volume growth. Beverage volume increased 1% in the quarter, reflecting high-single-digit growth in non-carbonated beverages partially offset by a low-single-digit decline in carbonated soft drinks (CSD). Within non-carbonated beverages, Gatorade, Lipton ready-to-drink teas, enhanced waters and energy drinks each increased double digits; trademark Aquafina grew mid-single-digits. Our portfolio of juice and juice drinks declined low-single-digits as a result of the ongoing effect of previous price increases. Net revenue grew 15%, driven by growth in finished goods beverages and effective net pricing primarily at Tropicana. Acquisitions contributed 2.5 percentage points of growth. Operating profit grew 19%, reflecting revenue gains and partially offset by higher input costs. The net impact of lower amortization expenses and acquisitions contributed 4 percentage points to growth. Quaker Foods North America (QFNA) profit grew 3%. Volume grew 3% in the quarter based on improved trends in oatmeal and ready-to-eat cereals. Net revenue increased 8% driven by volume growth and effective net pricing. Operating profit increased 3% as the revenue gains were partially offset by higher input costs and increased SAP costs. PepsiCo International (PI) posted broad-based gains in snacks and beverages. Snack volume growth of 8% was led by double-digit growth in Russia, the Middle East, Turkey and India. Gamesa volume grew mid-single-digits. Volume at both Walkers and Sabritas declined by less than 1%; in both cases, the volume trend improved sequentially and net revenue growth was positive. Acquisitions contributed nearly 2 points to total snacks growth. Beverage volume grew 9%, with double-digit growth in the Middle East, China, Brazil, Argentina, India and Russia partially offset by declines in Mexico, Thailand and Spain. In total, CSDs grew at a high-single-digit rate, posting growth in each of the division's four largest trademarks - Pepsi, 7-Up, Mirinda and Mountain Dew. Non-carbonated beverages grew at a double- digit rate, led by Lipton ready-to-drink teas and the addition of Sandora juice and juice drinks. Acquisitions contributed 2 points to total beverage growth. Organic net revenue grew 10%, reflecting broad-based volume gains and also effective net pricing. In total, net revenue grew 26%, including over 7 percentage points of growth from foreign currency and 8 percentage points from consolidations and the net impact of acquisitions and divestitures. Operating profit grew 12%, despite increased raw material costs. PI took the opportunity to make significant incremental investments in the quarter -- reducing operating profit by about 10 percentage points -- predominantly to drive continued growth in key businesses, particularly in emerging markets, and to implement SAP internationally. Foreign currency translation contributed 7 percentage points of growth. Consolidations together with the net of acquisitions and divestitures had no net impact. Higher tax rate impacted EPS growth. Corporate unallocated expenses increased $26 million in the quarter based on previously announced research and development spending. Net interest expense increased $24 million, reflecting higher net debt balances and lower gains on investments used to hedge deferred compensation expenses. For the quarter, the reported tax rate was 29.8% versus -7.5% in the prior year. Excluding the impact of net tax benefits recorded in both years, the comparable quarterly tax rate was 30.6% versus 28.4% last year. The higher comparable tax rate, related to volatility in connection with the prior adoption of FIN 48 and the impact of recent tax law changes in Mexico, reduced core EPS growth by more than 3 percentage points. 2008 GUIDANCE Company expects 2008 performance to be consistent with long-term targets. For 2008, the Company expects 3% to 5% volume growth, mid-to-high single digit net revenue growth and EPS of at least $3.72. The Company expects total worldwide input cost inflation to be in the mid-single-digit range. The tax rate is expected to be about 27.5%. Cash provided by operating activities is expected to be approximately $7.6 billion and capital spending about $2.7 billion. The Company intends to repurchase approximately $4.3 billion in shares; it also intends, over time, to continue to sell PBG common stock to an ownership level of 35% and, as previously announced, to sell PAS common stock, over time, to the ownership level at the time of the merger with Whitman Corporation in 2000 of about 37%. As a result of the previously announced reorganization, the Company will begin reporting six business segments -- Frito-Lay North America, Quaker Foods North America, Latin America Foods, PepsiCo Americas Beverages, UK/Europe and Middle East/Africa/Asia -- in the first quarter of 2008, up from four segments in 2007. About PepsiCo PepsiCo (NYSE: PEP) is one of the world's largest food and beverage companies, with 2007 annual revenues of more than $39 billion. The Company employs approximately 185,000 people worldwide, and its products are sold in approximately 200 countries. Its principal businesses include: Frito-Lay snacks, Pepsi-Cola beverages, Gatorade sports drinks, Tropicana juices and Quaker foods. The PepsiCo portfolio includes 17 brands that generate $1 billion or more each in annual retail sales. PepsiCo's commitment to sustainable growth, defined as Performance with Purpose, is focused on generating healthy financial returns while giving back to communities the Company serves. This includes meeting consumer needs for a spectrum of convenient foods and beverages, reducing the Company's impact on the environment through water, energy and packaging initiatives, and supporting its employees through a diverse and inclusive culture that recruits and retains world-class talent. PepsiCo is listed on the Dow Jones North America Sustainability Index and the Dow Jones World Sustainability Index. For more information, please visit www.pepsico.com. Cautionary Statement This release contains statements concerning PepsiCo's expectations for future performance, including our 2008 guidance. 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 such forward-looking statements. Such risks and uncertainties include, but are not limited to: changes in demand for our products, as a result of shifts in consumer preferences or otherwise; our ability to maintain our reputation; our ability to build and sustain our information technology infrastructure and successfully implement our Business Process Transformation Initiative; fluctuations in the cost and availability of raw materials; our ability to compete effectively; disruption of our supply chain; trade consolidation, the loss of any key customer, or failure to maintain good relationships with our bottling partners; changes in the legal or regulatory environment; our ability to hire or retain key employees or to outsource certain functions effectively; unfavorable economic, environmental or political conditions in the countries where we operate; and market risks arising from changes in commodity prices, foreign exchange rates and interest rates. For additional information on these and other factors that could cause our actual results to materially differ from those set forth herein, please see our filings with the Securities and Exchange Commission, including our most recent annual report on Form 10-K and subsequent reports on Forms 10-Q and 8-K. Investors are cautioned not to place undue reliance on any such forward-looking statements, which speak only as of the date they are made. PepsiCo undertakes no obligation to update any forward looking statements, whether as a result of new information, future events or otherwise. Miscellaneous Disclosures Conference Call: At 11 a.m. (Eastern Time) today, the Company will host a conference call with investors to discuss fourth-quarter 2007 results and the outlook for 2008. For details, visit the Company's website at www.pepsico.com and click on the "Investors" tab. Reconciliation: In discussing financial results and guidance, the Company may refer to certain non-GAAP measures. Reconciliations of any such non-GAAP measures to the most directly comparable financial measures in accordance with GAAP can be found under "PepsiCo Financial Press Releases" on the Company's website at www.pepsico.com in the "Investors" section. Beverage volume: Volume shipped to retailers and independent distributors from both PepsiCo and our bottlers. Volume for products sold by PepsiCo's bottlers is reported by PepsiCo on a monthly basis, with the fourth quarter comprising September, October, November and December. Concentrate Shipment Equivalents (CSE): CSE represents PepsiCo's physical beverage volume shipments to bottlers, retailers and independent distributors. "Effective net pricing" refers to the combined impact of mix and price. "Net pricing" refers to the combined impact of list price changes, discounts and allowances. "Pricing" refers to the impact of list price changes. Sales of PBG and PAS shares are made pursuant to 10b5-1 trading plans. Acquisition impacts to PI regional volume growth: For the quarter, acquisitions contributed 8 points to Asia Pacific snacks, 1.5 points to Latin America snacks, nearly 2 points to total PI snacks, 4 points to EMEA beverages and 2 points to total PI beverages. For the year, acquisitions contributed 1 point to EMEA snacks, 7 points to Asia Pacific snacks, 0.5 points to Latin America snacks, 2 points to total PI snacks, 1 point to EMEA beverages and 1 point to total PI beverages.
Summary of PepsiCo 2007 Results
% Growth Rate
Fourth Quarter Full Year
Volume (Servings) 5 4
Net Revenue 17 12
As Reported
Division Operating Profit 9 9
EPS (29) 2
Core
Division Operating Profit 11 10
EPS 8 13
Items Affecting Diluted EPS Comparability
Fourth Quarter Full Year
2007 2006 % Growth 2007 2006 % Growth
Reported diluted EPS $0.77 $1.09 -29% $3.41 $3.34 2%
Tax items (0.01) (0.37) (0.08) (0.37)
Restructuring and
impairment charges 0.04 0.03 0.04 0.03
Diluted EPS excluding
above items* $0.80 $0.74 8% $3.38 $3.00 13%
*Certain amounts do not sum due to rounding
DISCUSSION OF FOURTH QUARTER DIVISION OPERATING RESULTS
Summary of Division Results (core operating profit excludes impact
of restructuring actions)
% Growth Rates
As Reported
Fourth Quarter Full Year Operating Profit
Net Core Net Core
Vol- Rev- Oper. Vol- Rev- Oper. Fourth Full
ume enue Profit ume enue Profit Quarter Year
FLNA 3 8 7 3 7 7 13 9
PBNA 1 15 19 0 7 7 17 6
QFNA 3 8 3 2 5 2.5 3 2.5
PI 8/9* 26 12 9/8* 22 18 1 15
Total
Divisions 5.5/5* 17 11 6/4* 12 10 9 9
*Snacks/Beverages
PI Regional Volume Growth
% Growth Rate
Snacks Beverages
Full Full
Quarter Year Quarter Year
Latin America 5 6 4 4
Europe, Middle East and Africa 8 9 14 11
Asia Pacific 21 20 8 8
Total PI 8 9 9 8
