PepsiCo Reports Solid Fiscal Third-Quarter Results with Increases in Profitability and Strong Cash Flow

PepsiCo International posted strong gains in constant currency operating profit with improving volume trends in developing markets. Focused investments in consumer value and product innovation drove volume growth in global snacks and beverages.

09 Oct 2009 --- PepsiCo, Inc. reported solid profit performance in the third quarter of 2009, reflecting the company's balanced approach to investing in value and innovation in key markets as well as productivity and cost discipline across its businesses. Reported EPS was $1.09, and in constant currency the company delivered 5 percent net revenue growth and an 8 percent increase in core EPS.

Indra Nooyi, PepsiCo Chairman and Chief Executive Officer, said "PepsiCo's diversified food and beverage portfolio and our advantaged business model continued to drive solid results this quarter. Our teams around the world leveraged PepsiCo's agile go-to-market system to deliver our brands at differentiated value to consumers, who are still feeling the pinch of the global recession despite improving macroeconomic indicators.

"We will continue to make targeted investments across our entire portfolio, and we expect these to ramp up next year as we begin to realize the benefits of the integration of our two anchor bottlers. These investments in innovation, infrastructure, key markets and people development, coupled with our operating agility and focus, give me great confidence in both the near-and long-term growth prospects of PepsiCo," Nooyi continued.

Richard Goodman, PepsiCo Chief Financial Officer said, "As we prepare for 2010, we are targeting EPS growth of 11 to 13 percent in core constant currency. As we progress through 2010, if we do better than this range we will take the opportunity to make additional strategic broad-based investments in our business to enhance our competitiveness. "

Division Operating Summary

All references to net revenue and operating profit are on a constant currency basis.

PepsiCo Americas Foods (PAF) delivered a 7 percent increase in net revenue and a 6 percent increase in operating profit growth.

Frito-Lay North America (FLNA) reported a 3 percent increase in volume and a 5 percent increase in both net revenue and operating profit. Volume growth reflected high-single-digit growth in brand Lay's, combined with strong gains in FLNA's joint venture with Sabra and in variety packs. Product innovation highlights included Baked Lay's inclusions, as well as successful additions of Sabritas-derived flavors to our Ruffles and Fritos lines. Operating profit growth in the quarter was impacted by investments in value and also by the overlapping of price increases in the year ago period. We expect that commodity inflation will continue to moderate through the year and FLNA will remain focused on value initiatives to grow market share.

Quaker Foods North America (QFNA) grew volume and net revenue 8 percent, while operating profit declined 1 percent. Growth in volume and net revenue were favorably impacted by the overlap of last year's flood-related production disruptions at the key Cedar Rapids manufacturing facility. Growth in operating profit was adversely impacted by the overlap of the flood-related insurance settlement.

Latin America Foods (LAF) saw a 3 percent decline in volume, while net revenue increased 9 percent and operating profit grew 11 percent. Operating profit growth was muted by a one-time gain from a fire-related insurance settlement in the comparable prior year period. LAF's results reflected pricing actions, including weight-outs, disciplined cost control and productivity improvements across the region, all of which helped to offset commodity and foreign-exchange-related input cost inflation.

In Mexico, Sabritas and Gamesa both gained value share while delivering strong gains in operating profit. At Sabritas, a sequential improvement in salty volume was driven by the success of its value-oriented, salty-snack innovation as well as its Spinners promotion. In South America, there were broad-based value and volume share gains in key markets like Brazil, Argentina and Colombia.

PepsiCo Americas Beverages' (PAB) performance reflected the continued softness in the overall liquid refreshment beverage category in North America, recording a 6 percent decline in volume, 7 percent decline in net revenue and a 5 percent decline in operating profit. PAB continues to make progress on the company's ongoing strategy to refresh its beverage business in North America and the overall liquid refreshment beverage category.

In the U.S., PAB took the number one volume and value share position in carbonated beverages in measured channels. In non-carbonated beverages, the enhanced water portfolio gained share in the quarter, reflecting high-double-digit volume gains in SoBe LifeWater, and energy drink volume was also up double digits. While Gatorade volumes were down, this reflected modest improvement versus the first half of the year as expected. G2 continues to do well with the highest repeat purchase rate of any new LRB product in the past two years.

PepsiCo International (PI) delivered another strong quarter with net revenue up 13 percent and operating profit up 31 percent.

While the macroeconomic environment continued to be challenging in Europe this quarter, Europe drove margin expansion and profitability by balancing revenue growth, tight cost controls and productivity gains. Net revenue grew 12 percent and operating profit grew 18 percent. Acquisitions contributed 10 percentage points to net revenue growth and 6 percentage points to operating profit growth.

Europe snacks volume declined 1 percent, reflecting pricing actions and weight-outs to offset commodity inflation. Acquisitions contributed 3 percentage points of growth. In the U.K., Walkers grew value share through disciplined pricing and its "Brit Trips" promotion, while in Russia the continued success of "locally relevant" flavor innovation on Lay's and the Hrusteam crispbread product drove share gains.

Europe beverage volume grew 9 percent, driven by the Lebedyansky acquisition. Solid improvement in Western Europe and Turkey also contributed to a sequential improvement in volume growth.

Asia/Middle East/Africa (AMEA) net revenue grew 13 percent and operating profit improved 52 percent. The net impact of acquisitions and divestitures contributed 1 percentage point to net revenue growth and 34 percentage points to operating profit growth primarily due to a one-time gain associated with the contribution of our snacks business in Japan to form a joint venture with Calbee Foods Company, the snacks market leader in Japan. The solid operating profit performance excluding this impact was driven by strong flow-through from the growth in volume and cost discipline across the businesses.

AMEA beverage volume grew 9 percent. India delivered very strong volume growth across carbonated soft drinks and non-carbonated beverages as targeted investments in infrastructure, significant improvements in market execution and unseasonably dry weather conditions all contributed to better than 50 percent growth in the country. In China, sequential volume improvement in the quarter was driven by share gains in juice, particularly Tropicana's GuoBinFen line of locally relevant juice drinks, as well as by Gatorade. PepsiCo continues to drive expanded distribution of key beverage products in China including Pepsi Max, Lipton ready-to-drink tea and Tropicana Juicy Pulp Sacs.

AMEA snacks volume grew 8 percent, more than double its growth in the previous quarter. Strong sequential improvement resulted from broad-based geographic growth in India, South Africa and other emerging markets. In India, PepsiCo launched Aliva, a savory cracker product; and in Australia, the company launched Grainwaves, a multi-grain salty snack, augmenting its health and wellness portfolio in the country.