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MINNEAPOLIS, April 24, 2007 -- PepsiAmericas, Inc. (NYSE: PAS) today reported net income of $20.6 million in the first quarter of 2007, with revenue up 13.2 percent and worldwide volume up 10.6 percent including acquisitions. Diluted earnings per share (EPS) were $0.16 in the first quarter of 2007. EPS included the impact of special charges related mainly to the previously announced realignment of its U.S. sales organization, which reduced EPS by $0.01. These results compare to first quarter reported net income in 2006 of $14.1 million, or EPS of $0.11, which included a special charge in Central Europe that reduced EPS by $0.01.
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.
"Revenues outside the U.S. totaled over 20 percent of our worldwide net revenues," continued Mr. Pohlad, "Our Central Europe business stands out, delivering strong revenue growth, up 38 percent on a constant territory basis. This growth continues to be broad-based, with volume and profit improvements in all markets, and growth in both carbonated soft drinks and our non-carbonated beverages. On top of the strength of our existing markets, our Romania business continues its impressive track record of double digit revenue and operating profit growth."
First Quarter U.S. Operations Highlights
Volume was up 0.6 percent in the quarter compared to prior year, as growth in the company's non-carbonated portfolio offset carbonated soft drink declines of 3 percent. The company continued to build scale in its non-carbonated beverage business, growing the category 20 percent in the quarter. Aquafina grew 16 percent, while the balance of the non-carbonated portfolio showed consistent growth, up 24 percent, led by Lipton Iced Tea.
Net sales in the U.S. grew 5 percent to $764.9 million in the first quarter, driven by net pricing growth of 3.9 percent. Net pricing improvements primarily reflected rate increases as package mix was neutral, an improvement from past quarters. While the company's single serve business was essentially flat in the quarter, take home business grew and the mix of volume within these segments improved. Domestic cost of goods sold per unit increased 6.1 percent, reflecting both increased ingredient costs and higher non-carbonated mix related costs. Gross profit increased 1.9 percent to $316.5 million, as pricing covered cost of goods sold increases.
Selling, delivery and administrative expenses increased 0.8 percent, to $254.9 million. This compares favorably to first quarter 2006 as a percentage of net sales, due primarily to a $3.5 million unrealized gain in the fair value of derivative contracts that will reverse during the balance of the year. The company entered into these contracts to manage the risks associated with fluctuations in diesel fuel costs. First quarter operating income was $60.4 million including special charges of $1.2 million, compared to $57.7 million in the prior year quarter.
First Quarter International Operations Highlights
Central Europe volume grew 81.1 percent, including acquisition territories, in the first quarter. Constant territory volume, up 14 percent, was broad-based as all markets contributed. Central Europe net sales were $143.0 million in the first quarter, up 109.1 percent, with approximately 70 percentage points of the increase coming from the acquisition territories. Existing markets generated top-line growth of 38 percent due to strong volume and pricing. Average net pricing increased 19.2 percent reflecting 7 percentage points from foreign currency translation and the remainder due to strong mix improvements and rate increases. Cost of goods sold per unit increased 12.5 percent with foreign currency translation accounting for 5 percentage points of the increase, and the remainder driven mainly by higher ingredient costs. Reported gross profit increased 127.3 percent to $55.0 million for the quarter with the acquisition territories driving 85 percentage points of the increase and constant territories growing over 42 percent. Selling, delivery and administrative expenses of $53.8 million were up 63 percent, and up 20 percent on a constant territory basis, reflecting unfavorable foreign currency translations and higher volume. The Central European business reported operating income of $1 million in the quarter, an improvement from the $11 million operating loss reported in the prior year first quarter which included a $2.2 million special charge. The acquisition territories and profit improvements in each of the existing markets contributed to the overall operating results in Central Europe.
The Caribbean business reported a volume decrease of 6.4 percent, driven mainly by the softer economic conditions in Puerto Rico. An average net selling price improvement of 6.8 percent helped offset volume declines and drive top-line growth of 1.2 percent to $52.3 million in the first quarter. Cost of goods sold per unit increased 1.7 percent and gross profit decreased 2.3 percent to $12.7 million in the quarter. Selling, delivery and administrative costs increased 5 percent, resulting in an operating loss of $2 million for the quarter, $1 million unfavorable to the prior year.
Outlook
The company's full year 2007 reported EPS range of $1.33 to $1.37 remains unchanged. On an adjusted basis, the company expects EPS in the range of $1.35 to $1.40, which excludes an estimated $0.02 to $0.03 per share charge related to its previously announced U.S. sales organization realignment. This compares to an adjusted EPS of $1.32 in 2006.
As stated previously, the company expects EPS for the first half of the year to be flat compared to prior year due to timing of cost of goods sold increases and innovation.
PepsiAmericas will hold its first quarter earnings conference call at 11:00 AM CDT today, Tuesday, April 24, 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 30, 2006.
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Sara Zawoyski, 612.661.3830
Media Relations
Mary Viola, 847.598.2870
