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MINNEAPOLIS, October 24, 2007 -- PepsiAmericas, Inc. (NYSE: PAS) today reported net income of $71.5 million in the third quarter of 2007, with revenue up 11 percent and worldwide volume up 4.3 percent including acquisitions. Diluted earnings per share (EPS) was $0.55 in the third quarter of 2007. EPS included the impact of special charges related to the previously announced realignment of its U.S. sales organization, which reduced EPS by $0.01. These results compare to third quarter reported net income in 2006 of $53.1 million, or diluted EPS of $0.41.
Chairman and Chief Executive Officer Robert C. Pohlad said, "We are pleased with our third quarter performance, with all geographic segments contributing to our operating profit growth. "
"Our European business continues to be our strongest contributor, with revenues up double digits on volume gains in Romania, solid pricing in each of our markets, and continued foreign currency benefits. Operating profits in Europe more than doubled, and we continued to see significant expansion in our operating margins due to our single serve focus and operating leverage. "
"In the U.S., our successful execution against pricing and our single serve business helped offset higher costs and deliver operating profit growth in the quarter. While U.S. volume was slightly less than anticipated due to lower take home water, carbonated soft drink trends improved and double digit growth in our non-carbonated portfolio excluding water continued."
Mr. Pohlad continued, "As a result of our continued strong performance, we are raising our full year adjusted EPS guidance to a range of $1.63 to $1.66, a growth of 23 to 26 percent from last year."
Third Quarter Worldwide Financial Highlights
U.S. volume was down 1.6 percent in the quarter compared to the prior year. Carbonated soft drinks (CSD) declined by 4 percent reflecting continued softness of this category, however the trends improved from previous quarters. The non-carbonated category, excluding water, grew 11 percent for the quarter led by continued strength of the company's Lipton Tea business, up double digits. Aquafina volume was flat for the quarter.
Net sales in the U.S. grew 4 percent to $877.9 million in the third quarter, driven by net pricing growth of 5.2 percent. Net pricing improvements primarily reflected rate improvements with mix contributing 1 percentage point. The company's single serve business grew 1 percent in the quarter driven by innovation and strong marketing programs. Gross profit increased 2 percent to $356.8 million, as pricing growth covered cost of goods sold per unit increases of 6.7 percent.
Selling, delivery and administrative expenses increased to $264.7 million, up 2 percent, due, in part, to the lapping of higher costs of a year ago. Third quarter operating income was $90.8 million, including special charges of $1.3 million, compared to $90.1 million in the prior year quarter.
Third Quarter International Operations Highlights
Central European volume grew 25.2 percent, with acquisitions contributing 21 percentage points of the growth and the remainder driven by year over year Romania growth. Volume slowed in the company's developing markets, including Poland, Hungary, the Czech Republic and Slovakia, due to unseasonably poor weather in September and lapping very favorable weather conditions of a year ago. Central European net sales were $238.2 million in the third quarter, up 52 percent, with nearly 24 percentage points of the increase attributable to acquisitions. The remainder reflected overall pricing improvements, higher volume and a 16 percentage point increase from foreign currency translation.
Average net pricing increased 22.1 percent reflecting 13 percentage points from foreign currency, 3 points from acquisitions, and the remainder due mainly to mix improvements. Cost of goods sold per unit increased 12.9 percent with foreign currency accounting for 7 percentage points of the increase, acquisitions contributing 3 points, and the remainder driven by higher ingredient costs. Gross profit increased 67 percent to $109.4 million for the quarter with acquisitions driving nearly 25 percentage points of the increase. Selling, delivery and administrative expenses of $63.1 million were up 32 percent reflecting unfavorable foreign currency translation, as well as continued investments in brand equity.
The Central European business reported operating income of $46.3 million in the quarter, an improvement of $28.3 million from the prior year, with acquisitions, foreign currency and organic improvements each contributing equally.
The Caribbean business reported a volume decrease of 4.5 percent, driven mainly by the continued soft economic conditions in Puerto Rico. An average net selling price improvement of 6.9 percent helped offset volume declines and drive top-line growth of 2 percent to $67 million in the third quarter. Cost of goods sold increased to $49.3 million, up 5.8 percent on a per unit basis, driven mainly by higher ingredient costs. Selling, delivery and administrative costs decreased 3.3 percent, resulting in an operating profit of $2.9 million for the quarter, a $1 million improvement from the same period a year ago.
Outlook
Based on the strength of the third quarter results, the company is raising its full year 2007 adjusted EPS guidance range to $1.63 to $1.66. The fourth quarter includes an estimated $0.03 dilution from the Sandora acquisition, as well higher anticipated SD&A costs in the US. This compares to an adjusted EPS of $1.32 in 2006.
Acquisition impact: In the third quarter of 2006, the company acquired the remaining interest in QABCL, its Romanian bottler. Additionally, in the third quarter of 2007, the company completed the acquisition with PepsiCo of an 80 percent interest in Sandora, the leading juice company in Ukraine. The acquisition impact discussed in this release reflects the non-comparable territories year over year. In the third quarter of 2007, this includes one additional month of Romania results as the company began to consolidate the Romania operating results in August a year ago. Consistent with Romania's reporting, Ukraine will be reported on a one-month lag basis resulting in 2 weeks recognized in the third quarter.
PepsiAmericas will hold its third quarter earnings conference call at 11:00 AM CDT today, Wednesday, October 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; including Poland, Hungary, the Czech Republic, Slovakia, Romania and Ukraine; 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.
Contact
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Sara Zawoyski, 612.661.3830
Media Relations
Mary Viola, 847.598.2870