PepsiAmericas Reports First Quarter 2009 Results

Reported first quarter EPS of $0.17, adjusted EPS up 5% to $0.20, worldwide revenue increased 2.5% on a currency neutral basis, U.S. revenue up 6%.

30/04/09 PepsiAmericas, Inc. reported net income of $21.7 million and diluted earnings per share (EPS) of $0.17 in the first quarter of 2009. Net income in the first quarter of 2009 was negatively impacted by mark-to-market losses and special charges ("non-comparable items"), which decreased EPS by $0.03, resulting in adjusted EPS of $0.20. Results were also negatively impacted by foreign currency movements, which reduced net income by $15.3 million and EPS by $0.12. These results compare to first quarter reported net income in 2008 of $24.7 million, or $0.19 per share.

"PepsiAmericas is off to a strong start in 2009, illustrating how our geographic diversification continues to work for us," said Chairman and Chief Executive Officer Robert C. Pohlad. "Strong pricing across all markets, growth in carbonated soft drinks in the U.S., and solid execution of our productivity and cost reduction plans worked to offset significant foreign currency headwinds and drove first quarter earnings.

"In addition, we expanded our global product portfolio with new products and innovation and invested in growth capacity in Europe - strengthening our position in the marketplace. Productivity and cost initiatives are well on track to deliver the $40 million in cost savings for the year. And we continued our track record of returning cash to shareholders, with share repurchases and a 4 percent dividend increase in the quarter.

"PepsiAmericas' first quarter performance - enabled by our diverse geographic mix, capable organization, and powerful brands - strongly positions us to deliver our 2009 full year outlook at the high end of the range, despite the challenging global economic environment."

First Quarter 2009 Worldwide Financial Highlights

* Revenue of $1.1 billion decreased 4 percent, with currency neutral revenue up 2.5 percent, led by strong pricing across all markets.
* Volume declined 5.2 percent, reflecting Central and Eastern Europe (CEE) volume declines of 12.2 percent as the business cycled double digit volume growth in prior year quarter. U.S. volume trends improved to down 1.2 percent.
* Cost of goods sold per unit was below prior year quarter by 1.6 percent, primarily driven by the impact of foreign currency. On a currency neutral basis, cost of goods sold per unit increased 3.2 percent due to higher raw material costs. Cost of goods sold per unit excludes the impact of the mark-to-market losses.
* Selling, delivery and administrative expenses (SD&A) declined 1 percent, up 4 percent on a currency neutral basis and in line with expectations.
* Operating income decreased 9 percent to $64.2 million, including non-comparable items of $5.8 million. Comparable operating income decreased 1 percent, with pricing, productivity and cost control offsetting the negative impact from foreign currency.
* The impact of currency decreased revenue 6 percentage points and decreased cost of goods sold and SD&A by almost 5 percentage points each. The net effect was a 28 percentage point reduction to operating profits.

First Quarter U.S. Operations Highlights

Net sales in the U.S. increased 6 percent to $826.6 million in the first quarter driven by strong execution of pricing and innovation initiatives. The volume decline of 1.2 percent included a 2 percentage point decrease related to the quarterly shift in the Easter holiday. Despite the holiday impact, carbonated soft drink volume grew modestly, led by Mountain Dew and the addition of Crush. Non-carbonated soft drink volume decreased 7 percent, an improvement from full year 2008 trends. Single serve volume trends improved to down 1 percent, led by growth across all retail channels, while foodservice continued to be soft.

Net pricing grew 6 percent, primarily reflecting rate increases to cover higher raw material costs. Net pricing also benefited from the holiday shift and favorable package mix. Cost of goods sold per unit increased 4.9 percent, excluding the impact of the mark-to-market losses. Gross profit increased 6 percent in the quarter to $335.7 million.

SD&A increased 4 percent to $269.3 million driven by higher compensation and healthcare costs, as well as $1.6 million of mark-to-market losses on derivative instruments. First quarter operating income was $66.4 million, compared to $58.2 million in the prior year quarter, which included non-comparable items of $5.6 million and $0.5 million, respectively. Comparable operating income increased 23 percent.

First Quarter International Operations Highlights

CEE net sales were $182.8 million in the first quarter, down 31 percent from the prior year, primarily due to a 25 percentage point negative impact from foreign currency. Currency neutral net pricing grew 7.4 percent. Volumes declined 12.2 percent, reflecting difficult economic conditions as well as the lapping of double digit volume growth in the prior year quarter. Favorable volume trends continued in Poland during the first quarter.

Cost of goods sold per unit decreased 22.4 percent, reflecting a 19 percentage point decrease from foreign currency with the remainder of the decrease driven by favorable mix and system efficiencies. Gross profit declined 29 percent to $66.3 million for the quarter. SD&A of $67.0 million was down 15 percent primarily due to foreign currency offset mainly by the timing of advertising costs. CEE's operating loss was $0.7 million, as pricing and cost management offset, in part, the impact of volume declines and $19.8 million in foreign currency headwinds. This compared to operating income of $14.1 million in the prior year quarter.

Caribbean net sales were $48.1 million in the first quarter, down 12 percent from the prior year quarter due to a 14 percent volume decline and the impact of foreign currency. Currency neutral pricing increased 5.7 percent to cover increased cost of goods sold per unit, up 4.8 percent on a currency neutral basis. Gross profit declined 10 percent to $11.4 million. SD&A decreased 14 percent to $12.7 million as the benefits of the prior year's restructuring initiative were realized. The Caribbean reported an operating loss of $1.5 million, compared to an operating loss of $2.0 million in the prior year quarter.