PepsiCo Reports Second Quarter 2007 Results
Diluted Earnings Per Share of $0.94, up 15%
10% Revenue Growth
13% Net Income Increase
Raises Full Year 2007 EPS Guidance to at least $3.35

PURCHASE, N.Y., July 24 /PRNewswire-FirstCall/ -- PepsiCo reported a 15% increase in second-quarter earnings per share to $0.94. Growth was broad based, with each of the Company's operating divisions contributing to the 10% revenue and 9% division operating profit growth. The results also reflected a decrease in the quarterly tax rate.

 

PepsiCo Chairman and CEO Indra Nooyi said, "Our excellent top- and bottom- line performance in the second quarter reflects the underlying strength of our businesses, the high level of execution by our associates across the world, and the balance within our portfolio. All of our lines of business performed at or above our expectations, enabling us to generate strong division profit growth while lapping last year's best quarter.

"In North America, Frito-Lay maintained its strong momentum. Balanced revenue growth coupled with productivity resulted in expanded operating margins and 8% operating profit growth. Our beverage business grew operating profits 4%, lapping 13% growth in the prior year, marking another quarter of sequential improvement.

"On the International side, strong volume gains in snacks and beverages resulted in continued double-digit revenue and operating profit growth. Profit growth was broad based across our geographies."

Ms. Nooyi continued, "Our strong performance in the first half demonstrates the health of the business and supports our balance-of-year outlook. Accordingly, we are raising our full year earnings guidance to at least $3.35 per share. This change reflects a number of factors for the second half of the year: an increase in long-term R&D expenditures; investment spending to sustain our growth in key segments and geographies; and tax rates in the second half that will be above our average tax rate for the year, which we're now projecting at 27.3%.



    Summary of PepsiCo Second Quarter 2007 Results

                                                   % Growth Rate
                                          Quarter Alone       Year to Date
      Volume (Servings)                          4                 4
      Net Revenue                               10                10
      Division Operating Profit                  9                 9
      Net Income                                13                14
      Earnings Per Share                        15                16



    Summary of Division Second Quarter 2007 Results

                                             % Growth Rate
                               Quarter Alone               Year to Date

                                    Net      Oper.              Net      Oper.
                         Volume   Revenue   Profit   Volume   Revenue   Profit
    FLNA                   3         6        8        3         6        7
    PBNA                  (1)        5        4        -         5        2
    PI                    9/8*      18       18      11/8*      18       22
    QFNA                 (0.5)       4        2        2         4      2.5
    Total Divisions       6/4*      10        9       6/4*      10        9

    *Snacks/Beverages

Frito-Lay North America (FLNA) generated 6% revenue growth and 8% operating profit, resulting from margin expansion.

Net revenue grew 6%, reflecting 3% volume growth, positive net pricing and favorable mix. Revenue growth was led by double-digit growth in trademark Doritos, SunChips, multipacks, dips and Quaker rice snacks, partially offset by modest declines in Trademark Lay's.

Operating margins expanded almost 40 basis points. Revenue gains, manufacturing productivity and favorable casualty insurance adjustments from improved safety performance more than offset increased commodity costs and a double-digit increase in advertising and marketing expenses.

PepsiCo Beverages North America (PBNA) profits grew 4%, lapping 13% growth in the prior year.

Bottler case sales volume declined less than 1% in the quarter, cycling 8% growth in the second quarter of 2006. Carbonated soft drinks (CSD) declined 4% while non-carbonated beverages grew 3%. Non-carbonated volume performance was led by Lipton ready-to-drink teas, growing over 30%, and trademark Aquafina, growing high-single-digits. NCB growth was partially offset by modest declines in Tropicana and Gatorade sports drinks as Tropicana faced significant price increases and Gatorade cycled 29% volume growth in the second quarter of 2006.

Net revenue grew 5%, driven by positive net pricing and favorable mix. Acquisitions contributed 2 percentage points of growth.

Operating profits grew 4%, reflecting net revenue gains that more than offset higher input costs. Operating profit growth would have been 2 percentage points higher excluding the net impact of a $29 million favorable insurance settlement recorded in the second quarter of 2006 and lower amortization expenses in this quarter.

Quaker Foods North America (QFNA) revenue increased 4%.

Net revenue grew 4%, reflecting price increases taken earlier in the year and the resulting modest volume declines. Operating profit increased 2% on the net revenue growth, partially offset by increased raw materials costs.

PepsiCo International (PI) profits increased 18% on strong snacks and beverage growth.

Snacks volume grew 9%, reflecting double-digit growth in Russia, India and Gamesa in Mexico, partially offset by a 1% decline in our Walkers business in the U.K. Consistent with planned pricing actions, volume at Sabritas in Mexico declined 1%.

Beverage volume grew 8%, cycling 10% in the second quarter of 2006, led by double-digit growth in Pakistan, Russia, the Middle East, the U.K. and China, partially offset by declines in Mexico and Thailand. 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, with solid performance across the non-carbonated portfolio.



    PI Regional Volume Growth Second Quarter 2007 Results

                                 Snacks                     Beverages
    % Growth Rate     Quarter Alone  Year to Date  Quarter Alone  Year to Date
    Latin America           6              8             4              5
    Europe, Middle
     East and Africa       11             12            12             11
    Asia Pacific           19             19             5              6
        Total PI            9             11             8              8

Net revenue grew 18%, reflecting the volume growth and favorable effective net pricing. Foreign currency translation contributed 5 percentage points of growth and acquisitions contributed 4 points of growth.

Operating profit grew 18% driven by the revenue growth, scale leverage and lower amortization expenses. This was partially offset by increased raw material costs and expenses associated with a product recall in Brazil. Foreign currency translation contributed 5 percentage points of growth. Acquisitions had no impact on operating profit growth in the quarter.

Reduced tax rate and share repurchases contributed to EPS growth.

Corporate unallocated expenses increased $21 million, primarily reflecting higher deferred compensation costs. This increase was substantially offset, in interest income, by gains on investments used to economically hedge these costs.

A 220-basis-point reduction in the Company's quarterly tax rate and a 1.4% reduction in weighted-average shares outstanding also contributed to EPS growth. The tax rate in the quarter was lower than the expected full-year tax rate due primarily to an audit settlement recorded in the quarter.

2007 earnings guidance increased to reflect strength of the business year- to-date.

Given the strength of the business, the Company expects earnings of at least $3.35 per share which includes accelerated second half investments both in long-term R&D as well as in key segments and geographies. Cash provided by operating activities is expected to be approximately $7 billion and net capital spending to be approximately $2.6 billion. The Company's earnings guidance assumes a full-year tax rate of 27.3%, which includes a favorable adjustment associated with an audit settlement recorded in 2006.

About PepsiCo

PepsiCo (NYSE: PEP) is one of the world's largest food and beverage companies, with 2006 annual revenues of more than $35 billion. The Company employs approximately 168,000 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. For more information, please visit http://www.pepsico.com.

Cautionary Statement

This release contains statements concerning PepsiCo's expectations for future performance. Any such forward-looking statements are inherently speculative and are based on currently available information, operating plans and projections about future events and trends. As such, they are subject to numerous risks and uncertainties. Actual results and performance may be significantly different from expectations. The Company undertakes no obligation to update any such forward-looking statements. Please see the Company's filings with the Securities and Exchange Commission, including the Company's Annual Report on Form 10-K, for a discussion of specific risks that may affect performance.

Miscellaneous Disclosures

Conference Call. At 11 a.m. (Eastern Time) today, the Company will host a conference call with investors to discuss second-quarter 2007 results and the outlook for the full-year 2007. For details, visit the Company's website at http://www.pepsico.com.

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 http://www.pepsico.com in the "Investors" section.

Bottler Volume. Volume for products sold by PepsiCo's bottlers is reported by PepsiCo on a monthly basis, with the second quarter comprising April and May for North America, and March, April and May for PepsiCo International.

Bottler Case Sales (BCS). BCS represents physical beverage volume shipped to retailers and independent distributors from both PepsiCo and our bottlers.

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.

Acquisition impacts to PI regional volume growth: For the quarter, acquisitions contributed 3 points to Europe, Middle East and Africa region snacks volume, 10 points to Asia Pacific region snacks volume and 2 points to total snacks. For the year to date, acquisitions contributed 3 points to EMEA snacks, 10 points to Asia Pacific snacks and 2 points to total snacks.

SOURCE PepsiCo Click here for the Financial Tables & A Reconciliation and Explanation of Non-GAAP Items