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Minneapolis, July 26, 2006 -- PepsiAmericas, Inc. (NYSE: PAS) today reported net income of $65.0 million for the second quarter of 2006, with revenue up 4.5 percent and worldwide volume up 4.3 percent. Diluted earnings per share (EPS) was $0.50 in the second quarter of 2006. These results compared to reported net income in the second quarter 2005 of $72.6 million, or EPS of $0.53, which included a $0.06 per share benefit related to the fructose settlement.
"We are satisfied with our second quarter results, especially our strong volume performance," said Robert C. Pohlad, Chairman and Chief Executive Officer of PepsiAmericas. "In the U.S., our carbonated soft drink declines moderated from earlier this year, while momentum in our non-carbonated portfolio accelerated. A strong water performance and volume gains in Lipton Iced Tea and SOBE drove non-carbonated volume up 31 percent in the quarter. Although pricing was essentially flat in the U.S. due to the mix of packages sold, we executed well on rate increases during the quarter, up 2 percent in the U.S."
Commenting on the company's Central European and Caribbean operations, Mr. Pohlad continued, "In the second quarter, our international business delivered strong top line growth, driving double-digit increases in operating profits. Adding to the strength of our international portfolio, the Romania bottling operations will bring our mix of volume outside of the U.S. to over 25 percent."
Second Quarter U.S. Operations Highlights
U.S. volume was up 3.6 percent in the quarter compared to prior year. Carbonated soft drink volume declined 1 percent overall, reflecting continued softness in trademark Pepsi, while the flavored carbonated soft drink business grew 1 percent in the quarter, led by trademark Mountain Dew and trademark Sierra Mist. The company grew the non-carbonated beverage category 31 percent in the quarter. Aquafina volume grew 41 percent, while the balance of the non-carbonated beverage portfolio grew 22 percent, led by Lipton Iced Tea and SOBE. The company's broad portfolio of product offerings, robust innovation, and solid distribution gains continued to drive non-carbonated beverage volume increases, which accounted for 19 percent of the U.S. volume mix in the second quarter.
Net sales in the U.S. grew 3.4 percent to $892.1 million in the second quarter, driven by volume. Net pricing per unit remained essentially flat compared to the prior year quarter driven entirely by mix. The company sold less of its higher priced single-serve packages in the quarter, down 1 percent, while selling more of its lower priced take home packages. Domestic cost of goods sold per unit increased 3.7 percent, reflecting increases in raw material costs, as well as higher costs associated with the growth in the non-carbonated portfolio. Gross profit declined 2.2 percent to $368.0 million, reflecting the unfavorable mix impact on net pricing and the higher cost of goods sold per unit.
Selling, delivery and administrative expenses decreased $4.9 million, to $252.1 million, driven mainly by lower compensation and benefit costs. As reported, second quarter operating income in the U.S. was $115.9 million, down $16.8 million from the prior year quarter. The prior year second quarter benefited from the $13.3 million fructose settlement.
Second Quarter International Operations Highlights
Volume in Central Europe grew 11.4 percent in the second quarter. Central Europe net sales were $111.9 million in the second quarter, up 15.4 percent. Average net pricing increased 4.7 percent while cost of goods sold per unit increased 4.2 percent, with foreign currency translation driving approximately 1.5 points of growth in each. Gross profit increased 16.8 percent to $45.8 million in the quarter, reflecting strong top line growth. Selling, delivery and administrative expenses of $38.1 million increased 15.1 percent compared to the previous year as a result of higher volumes and increased advertising. The Central European business reported operating income up $1.6 million to $7.7 million in the quarter.
The Caribbean business reported a volume decline of 4.4 percent in the second quarter, primarily due to macroeconomic conditions, which impacted our Puerto Rico business during the month of April. This volume decline was offset by a 6.6 percent increase in net pricing, driving net sales up 2.3 percent to $61.2 million in the second quarter. Cost of goods sold per unit increased 6.6 percent, driven mainly by higher sugar costs. Caribbean gross profit grew 3.3 percent from last year to $15.7 million in the quarter. Selling, delivery and administrative costs increased 5 percent, resulting in operating income of $0.9 million for the quarter, a decrease of $0.2 million compared to the prior year.
Outlook
"Strong innovation and marketing programs in the back half of the year should give our U.S. business the lift it needs to deliver our full year targets. We expect single-serve volume to improve and pricing to accelerate in the U.S. from our second quarter results. And our expanding international portfolio continues to provide meaningful leverage and growth," commented Mr. Pohlad.
The company expects to achieve full year adjusted EPS at the lower end of the $1.44 to $1.49 range. Announced earlier this month, the company purchased the remaining interest in the Romanian bottling operations. The company expects the estimated $0.02 per share benefit from Romania to offset higher than expected interest expense. The full year EPS outlook excludes the impact of special charges but includes a $0.01 per share charge related to stock option expenses and the adoption of Statement of Financial Accounting Standards (SFAS) No. 123R "Share Based Payment."
The company's 2006 guidance compares to adjusted EPS of $1.37 in 2005. The 2005 reported EPS of $1.42 benefited from several items that increased EPS by $0.05, as previously reported.
PepsiAmericas will hold its second quarter earnings conference call at 10:00 AM CDT today, Wednesday, July 26, 2006, through a live webcast over the internet. The webcast will be available at www.pepsiamericas.com. A replay of the webcast will be archived and available online through the Investor Relations section of www.pepsiamericas.com.
PepsiAmericas is the second largest Pepsi bottler with operations in the U.S., Central Europe, and the Caribbean. PepsiAmericas manufactures, distributes and markets a broad portfolio of PepsiCo, and other national and regional brands. Additional information on PepsiAmericas is available at www.pepsiamericas.com.
Cautionary Statement
This release contains forward-looking statements of expected future developments, including expectations regarding anticipated earnings per share and other matters. These forward-looking statements reflect management's expectations and are based on currently available data; however, actual results are subject to risks and uncertainties, which could materially affect actual performance. Risks and uncertainties that could affect our future performance include, but are not limited to, the following: competition, including product and pricing pressures; changing trends in consumer tastes; changes in our relationship and/or support programs with PepsiCo and other brand owners; market acceptance of new product and package offerings; weather conditions; cost and availability of raw materials; changing legislation; outcomes of environmental claims and litigation; availability of capital including changes in our debt ratings; labor and employee benefit costs; unfavorable interest rate and currency fluctuations; costs of legal proceedings; and general economic, business and political conditions in the countries and territories where we operate. Any forward-looking statements should be read in conjunction with information about risks and uncertainties set forth in our Securities and Exchange Commission reports, including our Annual Report on Form 10-K for the year ended December 31, 2005.
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Contact:
Investor Relations:
Sara Zawoyski, 612-661-3830
sara.zawoyski@pepsiamericas.com