PepsiCo Delivers Solid First-Quarter Revenue

Our macrosnacks business gained share in key markets and we posted solid performance in beverages supported by the benefits of the acquisition of our two largest bottlers, growth in developing markets and improving top-line trends in North America.

22 Apr 2010 --- PepsiCo, Inc. reported solid results for the first quarter of 2010, driven by the acquisition of its two anchor bottlers, volume gains in its worldwide snacks and international beverage businesses, balanced investments in value and innovation, and lower costs across its operations.

PepsiCo Chairman and CEO Indra Nooyi said: "PepsiCo's broad portfolio performed well in the quarter as our operating agility and solid marketplace execution enabled us to deliver strong financial and operational performance. Our macrosnacks business gained share in key markets and we posted solid performance in beverages supported by the benefits of the acquisition of our two largest bottlers, growth in developing markets and improving top-line trends in North America."

PepsiCo Chief Financial Officer Hugh Johnston said: "We delivered double-digit gains in both revenue and core constant currency operating profit in the quarter, while making incremental strategic investments in China and other key markets. Through rigorous financial discipline we generated $794 million in management operating cash flow, excluding certain items, which was a significant increase from last year. In the second quarter we are stepping up investments in innovation, R&D and infrastructure, all of which should help us accelerate our growth in the second half of the year."

First-Quarter Operating Highlights:

* Frito-Lay North America (FLNA) expanded operating margins through cost discipline and lower commodity costs. In the second quarter, FLNA is making targeted investments in infrastructure and innovation that are expected to accelerate performance in the second half of the year.
* PepsiCo Americas Beverages (PAB) successfully completed its bottling transactions and held volume share in carbonated soft drinks (CSDs) in the U.S. as top-line trends improved in the North American beverage business.
* Asia, Middle East, Africa (AMEA) posted strong growth in key developing markets such as India and China, where both snacks and beverages posted double-digit volume growth.

Division Operating Summary

PepsiCo Americas Foods (PAF) continued to deliver consistent performance as it overlapped double-digit gains in net revenue and core operating profit in the first quarter of 2009.

FLNA gained volume share, expanded margins and delivered strong core operating profit growth of 9 percent. Increased margins were driven by both cost discipline and lower input costs as the division took minimal pricing in the quarter. FLNA grew net revenue 1 percent as it overlapped strong growth in the year-ago period due to pricing actions to offset commodity inflation.
 
Volume also grew 1 percent, reflecting strong performance in trademark Lay's and variety packs, both of which grew volume share in their respective sub-categories. Outside the snack aisle, Stacy's Pita Chips and Sabra dips continued to drive strong growth.
 
In the quarter, FLNA introduced innovative, better-for-you snacking options for consumers, including all-natural versions of Lay's potato chips and lightly salted versions of Fritos corn chips and Ruffles potato chips.
 
Quaker Foods North America (QFNA) volume was down 1 percent, net revenue was down 3 percent and core operating profit was down 14 percent, driven almost entirely by the overlap of an insurance settlement.

Latin America Foods (LAF) volume grew 1 percent and net revenue was up 8 percent in the first quarter. Core operating profit declined 5 percent as LAF lapped nearly 30 percent core operating profit growth in the first quarter of last year. LAF is currently making investments in both value and infrastructure which are expected to benefit operating results in the second half of this year.

PAB posted a 32 percent increase in net revenue and a 28 percent increase in core operating profit, driven by the favorable impact of the acquisitions, a focus on profitable volume and ongoing productivity enhancements.

North America Beverages maintained volume share leadership in measured channels and showed improved CSD volume trends driven by Pepsi Refresh, Throwback versions of Pepsi and Mountain Dew and our Super Bowl value promotions.

In the hydration segment, SoBe Lifewater continues to perform well, gaining both volume and value share. In the second quarter, Gatorade has begun to roll out its G Series, which provides benefits to athletes before, during and after their sports activities.

PepsiCo Europe net revenue declined 3 percent and core operating profit grew 4 percent, reflecting disciplined financial management and a continued focus on productivity. Performance in Europe reflected a challenging macroeconomic environment across the region, particularly in Eastern Europe.

Europe snacks volume was down 4 percent in the quarter, reflecting poor weather in Western Europe and particularly challenging macroeconomic conditions in Eastern Europe. In the U.K., double-digit growth in the Quaker portfolio of healthy snacks was more than offset by declines at Walkers as they overlapped the successful Do Us a Flavour promotion. In the second quarter, Europe will drive innovation in its healthy snacks portfolio through the expansion of Baked Lays in Western Europe and its nuts platform in Spain and Portugal.

Europe beverage volume declined 4 percent, reflecting category weakness. Europe's CSD portfolio performed well in key markets, growing value share in Russia, the U.K., Turkey and Germany. In the second quarter, Europe will launch Mountain Dew in the U.K. and deliver differentiated value across brands and countries through price/pack architecture initiatives and a strong promotional calendar.

AMEA drove strong top-line growth across both snacks and beverages, reflecting volume momentum in China and India due to improving demand and strong marketplace execution. AMEA net revenue increased 18 percent and core operating profit grew 12 percent, reflecting strategic investments in China. Acquisitions impacted net revenue growth favorably by 1 percentage point and adversely impacted core operating profit growth by 2 percentage points.

AMEA snacks volume grew 13 percent, reflecting broad-based increases driven by double-digit growth in China and India. In India, Kurkure grew double digits as the division built on the success of this product by launching a new flavor in the quarter. Growth in China reflects powerful market execution of Chinese New Year promotions. Acquisitions contributed almost 3 percentage points to volume growth.

AMEA beverage volume increased 10 percent year over year, including double-digit volume expansion in India and China. AMEA continued to drive locally relevant innovation in the quarter, launching several new products, including blueberry-flavored Guo Bin Fen and expanding distribution of Tropicana Pulp Sacs in China.