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MINNEAPOLIS, January 31, 2007 -- PepsiAmericas, Inc. (NYSE: PAS) today reported net income of $158.3 million for the full year 2006, with revenue up 6.6 percent including acquisitions. Diluted earnings per share (EPS) was $1.22 for the full year 2006, including a $0.10 reduction related to previously announced special charges and an impairment charge related to a write-down of a legacy investment. These results compare to full year reported net income in 2005 of $194.7 million, or EPS of $1.42. The prior year EPS results included various items that resulted in a combined net increase of $0.05 in 2005, as explained in the attachment to this release.
In the fourth quarter of 2006, PepsiAmericas reported net income of $26.1 million, or EPS of $0.20, which included special charges and an impairment charge totaling $0.09. These reported results compare to net income of $37.6 million in the fourth quarter of 2005, or EPS of $0.28, which included various items that resulted in a combined net decrease of $0.01 in 2005. During the third quarter of 2006, the company completed the acquisition of bottling operations in Romania and distribution rights in Moldova. These geographies are referred to as the acquisition territories in this release.
Full Year 2006 Financial Highlights
Volume declined 0.4 percent in the quarter compared to prior year, as the growth in the company's noncarbonated portfolio was offset by the carbonated soft drink declines. Carbonated soft drink volume was down 5 percent reflecting continued overall category softness. The package mix of carbonated soft drink volume, however, improved in the quarter with innovation driving improved single serve performance. The company grew the noncarbonated beverage category over 30 percent in the quarter, led by Aquafina and Lipton Iced Tea.
Net sales in the U.S. grew 3.3 percent to $783.8 million in the fourth quarter, driven by net pricing growth of 1.5 percent as well as increases in other revenues, mainly contract sales. Net pricing improvements reflected stronger single serve volume, up over 1 percent, as well as rate increases of over 2 percent on top of strong pricing a year ago. While take home packages decreased almost 1 percent, the package mix continued to have an overall negative impact on net pricing. Domestic cost of goods sold per unit increased 4.3 percent, reflecting higher raw material costs. Gross profit declined by 0.3 percent to $324.9 million, representing an improvement from the third quarter's 1.4 percent decline.
Selling, delivery and administrative expenses decreased 1.6 percent to $247.0 million in the fourth quarter as the company lapped a lease exit charge of $6.1 million from a year ago. The fourth quarter operating income was $66.4 million, including special charges of $11.5 million. These results compare to prior year fourth quarter operating income of $76.4 million, which included the lease exit charge partly offset by the $1.5 million fructose settlement.
Fourth Quarter International Operations Highlights
Central Europe volume grew 71.1 percent, including the acquisition territories. Volume was up 11.1 percent on a constant territory basis, reflecting continued growth in all categories and across all markets. Central Europe net sales reached $146.6 million in the fourth quarter, up 90.9 percent, with almost 60 percentage points of the increase coming from the acquisition territories. Existing markets delivered top-line growth, up over 30 percent, reflecting broad based volume and pricing increases. Average net pricing increased 15.2 percent, reflecting 11 percentage points due to foreign currency translation and the remainder reflecting underlying strong rate and mix. Cost of goods sold per unit increased 10.5 percent with foreign currency translation accounting for almost 8 percentage points of the increase. Reported gross profit increased 107.8 percent to $55.7 million for the quarter with the acquisition territories driving 67 percentage points of the increase and constant territories growing over 40 percent. Selling, delivery and administrative expenses were up 71.3 percent, and up 28.4 percent on a constant territory basis reflecting unfavorable foreign currency translation, higher compensation and benefit costs, and higher volume. Operating income grew to $6.2 million compared to an operating loss of $2.1 million in the prior year quarter, driven mainly by the contribution from the acquisition territories, the benefit from foreign currency translation, and improved operating performance.
The Caribbean business reported a volume increase of 3.2 percent. An average net selling price improvement of 5.1 percent helped to drive net sales up 9 percent to $64.1 million. Cost of goods sold per unit increased 6.2 percent, as higher raw material and utility costs continued. Gross profit increased 6.4 percent to $16.6 million in the fourth quarter. Selling, delivery and administrative costs increased 4.7 percent, mainly reflecting the higher volume performance. Operating income grew to $3.2 million compared to $2.8 million in the prior year quarter.
Outlook
"We begin the year with many positives, most notably the potential of our international markets, along with a newly aligned U.S. sales organization," remarked Mr. Pohlad. "Cost of goods sold, however, will be a challenge for us in 2007 as raw materials costs are expected to be substantially higher. In 2007, our top priority is to drive greater balance in our U.S. portfolio and realize rate increases to help offset these cost pressures. We are also focused on building greater capability and efficiencies throughout our supply chain, in addition to investing behind our international businesses. We expect these initiatives, along with strong innovation from our PepsiCo partnership, to enable our success in 2007 despite a difficult cost environment."
The company expects full year reported EPS to be in the range of $1.33 to $1.37 in 2007, including an estimated $0.02 to $0.03 special charge related to the previously announced reorganization of the company's U.S. business. This compares to reported EPS of $1.22 in 2006. As previously discussed and included on the attached reconciliation table, the 2006 results included special charges and an impairment charge that decreased EPS by $0.10, resulting in an adjusted EPS of $1.32 for the full year 2006.
The company's financial outlook for 2007 is outlined in the below table, which includes the impact of the acquisition territories unless noted as constant territory. The acquisition territories have a one point impact on average net selling price and cost of goods sold per unit, both lower than on a constant territory basis.
Additionally, the company expects to generate adjusted operating cash flow of $190 to $200 million in 2007, with capital spending in the range of $190 to $200 million.
PepsiAmericas will hold its fourth quarter and full year earnings conference call at 10:00 AM CT today, Wednesday, January 31, 2007, through a live webcast over the internet. The live 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 world's second-largest manufacturer, seller and distributor of PepsiCo beverages with operations in 19 U.S. states, Central Europe, and the Caribbean. For more information on PepsiAmericas, please visit 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 and cost 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
Media Relations
Mary Viola, 847-598-2870
mary.viola@pepsiamericas.com