PepsiCo Delivers Solid Third-Quarter Results

The company also announced the creation of a new Global Nutrition Group to allow PepsiCo to deliver breakthrough innovation in the areas of fruits and vegetables, grains, dairy and functional nutrition.

Oct 8 2010 --- PepsiCo, Inc. has reported solid volume, revenue and profit results for the third quarter of 2010, driven by broad-based gains across its snack and beverage portfolio and the acquisition of its two anchor bottlers.

“Even in a macroeconomic environment that continues to be challenging, we believe we have achieved top-tier performance among leading consumer staple companies,” said PepsiCo Chairman and CEO Indra Nooyi. “This reflects our steadfast commitment to managing both the short-term and long-term, by driving balanced growth across our portfolio while making the right strategic investments.”

The company also announced the creation of a new Global Nutrition Group to allow PepsiCo to deliver breakthrough innovation in the areas of fruits and vegetables, grains, dairy and functional nutrition. Based in Chicago, it will be run by PepsiCo’s chief scientific officer, Dr. Mehmood Khan, who has been named CEO of the new group and retains responsibility for the company’s research and development organization.

“The creation of this Global Nutrition Group is part of our long-term strategy to grow our nutrition businesses from about $10 billion in revenues today to $30 billion by 2020,” Ms. Nooyi continued. “The market potential is significant, our stable of brands – Quaker, Tropicana, Lebedyansky, Sabra, Alvalle – impressive, and our go-to-market systems powerful. We have been actively ramping up our innovation capabilities and developing strong partnerships with the scientific community, including with universities and research institutions around the world. I believe we are well equipped to deliver authentically nutritious products advantaged by science in an accessible and affordable way to consumers globally.”

• Frito-Lay North America (FLNA) drove a sequential improvement in volume growth, consistent with expectations, as it continued to overlap the “20% More Free” promotion launched in the second quarter of 2009. The sequential improvement in operating profit growth was aided by lower costs and growth in net revenue driven by investments in innovation and brand building earlier in the year. Unit growth remained in the low single digits as the division gained salty-snack dollar share and posted the fastest value growth among top-20 food and beverage companies in measured channels.

Quaker Foods North America (QFNA) gained both value share and volume share in the quarter in a category that was down, benefiting from investments in value, quality, innovation and increased advertising and marketing.

Latin America Foods (LAF) drove double-digit gains in net revenue and operating profit, led by continued focus on value, marketplace execution, innovative promotions, investments in infrastructure and effective cost controls.

PepsiCo Americas Beverages (PAB) volume, net revenue and operating profit results were driven by the favorable impact of the bottling acquisitions, synergies and improving sequential organic volume trends across the product portfolio in North America.

Volume in North America, excluding the incremental volume from our agreement with Dr Pepper Snapple Group, was flat in the quarter – a one percentage point sequential improvement versus the second quarter of 2010. In the U.S., PAB realized a positive liquid refreshment beverage volume share swing versus our closest competitor in measured channels, aided by the very successful launch of Gatorade’s G Series, which drove a mid-teens increase in Gatorade volume, and ready-to-drink teas, which grew at a high-single-digit rate. PAB’s relative carbonated soft drink volume share position also strengthened sequentially in the U.S., aided by the re-launch of Pepsi Max.

Europe volume, net revenue and operating profit growth were driven by broad-based gains across the region in both snacks and beverages as the business balanced net revenue realization with innovative consumer value programs while keeping a sharp focus on productivity. The division also benefited from the favorable impact of the bottling acquisitions.

Growth in snack volume was driven by a significant improvement in sequential performance in Eastern Europe, underpinned by strong commercial programs such as “Do Us a Flavor” in Poland and a travel promotion in Russia. In the quarter, the business also continued its expansion into adjacencies by launching its Benenuts nuts brand in Poland and Iberia.

Reported beverage volume grew 17 percent, while volume excluding the impact of incremental brands related to our acquisitions of PBG and PAS increased 10 percent – a sequential improvement of six points from the second quarter of 2010. While both Eastern and Western Europe experienced gains, most of the positive growth came from Eastern Europe, driven by a strong commercial calendar combined with an unusually hot summer that drove category growth. The business captured dollar share gains in key markets such as Russia, Turkey, Spain and the U.K.

In Asia, Middle East and Africa (AMEA) volume gains in both snacks and beverages drove strong top-line performance. As expected, operating profit growth declined in the quarter as the region overlapped 31 points of growth in the third quarter of fiscal 2009 related to a gain recorded in connection with the contribution of our snacks business in Japan to form a joint venture with Calbee Foods, the snacks market leader in Japan. Operating profit performance in the division was also impacted by the step-up of investments in emerging markets as we continue to expand our footprint and build capability in both snacks and beverages.

Snack volume grew at a mid-teens rate – driven by double-digit growth in the Middle East, India, China and Indonesia. In India, volume was up over 20 percent behind the continued success of our marketing efforts such as Lay’s “Give Us Your Delicious Flavor,” product innovations and strong performance of the Quaker brand. Acquisitions contributed 1.5 percentage points to volume growth.

Beverage volume growth benefited from high-single-digit growth in China, which was driven
by continued strong growth in both carbonated and non-carbonated beverages as we stepped up
marketplace investments in routes, coolers and advertising and marketing.

PepsiCo’s reported tax rate was 27.4 percent in the third quarter, versus 24.9 percent in the prioryear period. The increase in the rate versus the prior-year period was primarily driven by the favorable resolution of certain foreign tax matters and certain deferred tax adjustments recorded in the prior year. PepsiCo’s core tax rate was 27.4 percent for the third quarter. The company expects its full-year reported tax rate to be roughly 23 to 24 percent, which reflects a benefit of about four percentage points from non-core items.