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MINNEAPOLIS, January 30, 2008 -- PepsiAmericas, Inc. (NYSE: PAS) today reported net income of $212.1 million for the full year 2007, with revenue up 13 percent including acquisitions. Diluted earnings per share (EPS) was $1.64 for the full year 2007, including a $0.02 reduction related to discontinued operations. These results compare to full year reported net income in 2006 of $158.3 million, or EPS of $1.22, which included a $0.10 reduction related to special charges and an impairment charge.
In the fourth quarter of 2007, PepsiAmericas reported net income of $42 million, or EPS of $0.32, which included a $0.01 reduction related to special charges. These reported results compare to net income of $26.1 million in the fourth quarter of 2006, or EPS of $0.20, which included a $0.09 reduction related to special charges and an impairment charge.
Chairman and Chief Executive Officer Robert C. Pohlad said, "Consistent execution on all parts of our strategy drove our strong performance in 2007.
"Central Europe continues to be our strongest contributor as we capture the topline growth opportunities in our increasingly diverse portfolio of markets. Investments in selling resources, brand building, and an expanding product portfolio drove volume growth ahead of the overall category, led by double digit volume gains for the year in our major markets, Romania and Poland. Along with acquisitions and foreign currency benefits, our Central European business delivered operating profits over $100 million, over four times that of the prior year.
"In the U.S., pricing, innovation and single serve execution offset higher costs. We grew our noncarbonated portfolio 10 percent for the year, partially offsetting the expected declines in carbonated soft drinks. Our U.S. business delivered operating profits of over $330 million, and while down modestly from last year, it continues to generate strong cash flow. The combination of these markets, the stability in the U.S. and the growth in Europe, drove our strong results, with adjusted earnings per share from continuing operations up 26 percent from last year."
Mr. Pohlad continued, "The significant progress we made in building our capabilities, expanding our global product portfolio, and diversifying our markets, along with a strong and agile organization, provide confidence in our 2008 outlook of adjusted earnings per share growth of 7 to 10 percent."
Full-Year 2007 Worldwide Financial Highlights
Fourth Quarter U.S. Operations Highlights
Volume declined 0.6 percent in the quarter compared to the prior year. Carbonated soft drink (CSD) volume declined 2 percent, an improvement from the full year trend of being down 4 percent. The non-carbonated category, excluding Aquafina, was up 12 percent led by the continued strength in the company's Lipton business and the successful execution of the hydration and energy strategies. Aquafina volume declined 1 percent in the quarter reflecting a softer category.
Net sales in the U.S. grew 4 percent to $812.2 million in the fourth quarter, driven by net pricing growth of 3.8 percent. Net pricing improvements primarily reflected rate improvements with a modest contribution from mix. The company's single serve business grew slightly in the quarter driven by innovation while take home package was down 1 percent. Gross profit increased 5 percent to $340.8 million, as pricing growth covered the cost of goods sold per unit increase of 2.3 percent. Costs moderated in the quarter, which reflected higher raw material costs from a year ago and procurement savings recorded in the quarter.
Selling, delivery and administrative expenses increased 11 percent to $273.3 million, as anticipated, due to the lapping of lower compensation and benefit costs from a year ago, the reversal of the company's previous quarter's fuel hedge favorability and increased marketplace investment. Fourth quarter operating income was $66.6 million, including special charges of $0.9 million, compared to $66.4 million in the prior year quarter which included special charges of $11.5 million.
Fourth Quarter International Operations Highlights
Central European volume grew 56.1 percent, with acquisitions contributing 49 percentage points of growth and the remainder driven by continued year over year growth in existing markets, led by Romania and Poland. Central European net sales were $261.2 million in the fourth quarter, up 78 percent, with nearly 52 percentage points of the increase attributable to acquisitions. The remainder reflected foreign currency translation, higher volume and underlying pricing improvements.
Average net pricing increased 16.8 percent, primarily reflecting foreign currency translation and continued strong single serve volume offset by 4 points of dilution from acquisitions. Cost of goods sold per unit increased 14.1 percent with foreign currency translation accounting for almost 10 percentage points of the increase and the remainder driven primarily by acquisitions. Gross profit increased 82 percent to $101.5 million for the quarter with acquisitions driving 34 percentage points of the increase. Selling, delivery and administrative expenses of $76.6 million were up 55 percent, which included 31 percentage points from acquisitions. The remaining increase resulted from unfavorable foreign currency translation and continued investments in brand and marketplace availability.
Central European operating income increased to $23.6 million, a $17.4 million improvement over the prior year, driven by the benefit from foreign currency translation, improved operating performance and acquisitions.
The Caribbean business reported a volume decrease of 5.1 percent, mainly due to continued soft economic conditions and competitive pressures in Puerto Rico. Partially offsetting these volume declines was an average net selling price improvement of 3.9 percent, resulting in net sales down 0.3 percent to $63.9 million. Cost of goods sold per unit increased 5.2 percent, as higher raw material and utility costs continued resulting in gross profit of $15.8 million. Selling, delivery and administrative costs increased 0.7 percent driving operating income to $2.3 million compared to $3.2 million in the prior year quarter.
Outlook
The company expects full year reported EPS to be in the range of $1.77 to $1.83 in 2008, including an estimated $0.01 benefit related to the impact of the 53rd week offset by $0.01 reduction related to special charges. This compares to EPS of $1.64 in 2007, which included a $0.02 loss from discontinued operations.
The company's financial outlook for 2008 is estimated in the below table, which includes the impact of the acquisitions unless noted as constant territory.
Additionally, the company expects to generate adjusted operating cash flow of approximately $200 million in 2008, with capital spending in the range of $250 to $260 million.
53rd week: The company's fiscal year ends on the Saturday closest to December 31 and, as a result, an additional week is added every five to six years. Fiscal year 2008 will consist of 53 weeks ending on January 3, 2009. Fiscal year 2007 consisted of 52 weeks ending on December 29, 2007. This fiscal year end policy impacts the U.S. and Caribbean operations as Central Europe is based upon a calendar fiscal year ending December 31, 2008 and, therefore, is not impacted by the 53rd week.
Acquisition impact: The acquisition impact discussed in this release reflects the year over year non-comparable territories. In the fourth quarter of 2007, this captures a full quarter of results for Ukraine. For the full year 2008, this includes results from Romania up to August as the company began to consolidate the Romania operating results in August a year ago, as well as the Ukraine results. Consistent with Romania's reporting, Ukraine is reported on a one-month lag.
PepsiAmericas will hold its fourth quarter earnings conference call at 10:00 AM CST today, Wednesday, January 30, 2008, 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.
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