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MINNEAPOLIS, July 22, 2008 -- PepsiAmericas, Inc. (NYSE: PAS) today reported net income of $90.8 million in the second quarter of 2008, with revenue up 12 percent including acquisitions. Diluted earnings per share (EPS) was $0.72 in the second quarter of 2008. These results compare to second quarter reported net income in 2007 of $78 million, or EPS of $0.61. 2007 results increased by a $0.01 per share for non- comparable items as reconciled in footnote 1.
Chairman and Chief Executive Officer Robert C. Pohlad said: "PepsiAmericas continues to execute its long-term strategy, which drove strong results for the quarter and helped deliver a good first half of the year.
"Central and Eastern Europe - led by Poland, Romania and Ukraine - continues to fuel this growth. In the U.S., pricing and productivity gains helped to offset our volume performance. I'm pleased with the way we continue to manage our U.S. business.
"We are raising our earnings guidance for 2008; we now expect to deliver full year adjusted EPS of $1.92 to $1.96 - a growth range of 16 to18 percent from continuing operations."
Second Quarter Worldwide Financial Highlights
Revenue increased 12 percent to $1.3 billion, reflecting 9 percentage points from acquisitions, strong pricing across all markets, and volume growth in Central and Eastern Europe (CEE).
Volume grew 8.4 percent, with constant territory volume down 3.6 percent reflecting U.S. volume declines.
Operating income increased 15 percent to $165.5 million, including 10 percentage points from acquisitions. Operating margins expanded as the company offset the worldwide cost of goods sold per unit increase of 5.7 percent with improved pricing and mix, and effectively managed its selling, delivery, and administrative expenses (SD&A).
Foreign currency contributed 3 percentage points of growth to revenue, 2 percentage points to cost of goods sold and 4 percentage points to SD&A. The net effect was an 8 percentage point benefit to operating income. The results also included a benefit from a reduction in the company's effective tax rate which reflects the growth in its CEE business.
The company returned $40.9 million to shareholders during the quarter through share repurchases and dividends.
Second Quarter U.S. Operations Highlights
Net sales in the U.S. decreased 1 percent to $917.2 million in the second quarter resulting from volume declines of 5.4 percent. This volume performance reflected an estimated 1 percentage point decrease from the Easter holiday shift, 1 percentage point decline from continued softness in lower margin Aquafina take home packages, 1 percentage point decline from teas, and a 1 percentage point decrease from the foodservice channel, including full service vending. Single serve volume, down 2 percent, improved from the previous quarter due to innovation and marketplace execution.
Net pricing growth of 3.7 percent primarily reflected rate increases that covered higher cost of goods sold and included a 1 percentage point benefit from favorable mix. Domestic cost of goods sold per unit increased 3.4 percent, reflecting increased raw material costs and higher non-carbonated mix related costs. Gross profit decreased 1 percent in the quarter to $383.9 million.
Selling, delivery and administrative expenses decreased 1 percent to $271.2 million. Favorable compensation and benefit expenses and effective productivity management helped offset higher fuel costs in the quarter. Second quarter operating income was $112.6 million, compared to $113.8 million in the prior year quarter, which included special charges of $1.4 million.
Second Quarter International Operations Highlights
CEE volume grew 51.7 percent. Constant territory volume was up 1 percent led by double digit growth in Romania and modest growth in Poland, in line with expectations, partly offset by lower volume in Hungary. CEE's net sales were $359 million in the second quarter, up 73 percent, with 50 percentage points of the increase attributed to acquisitions.
Average net pricing increased 19 percent, reflecting a mid-single digit pricing increase in local currency, with foreign currency benefits being offset, in part, by a 7 percentage point acquisition impact. Cost of goods sold per unit increased 29 percent with acquisitions adding 4 percentage points and reflecting high single digit local currency increases driven by mix and higher raw material costs. Gross profit grew 59 percent to $146.6 million for the quarter, with acquisitions driving 32 percentage points of the increase. Selling, delivery and administrative expenses of $94.9 million were up 52 percent, which included 23 percentage points from acquisitions. The remaining increase was driven mainly by foreign currency.
CEE's operating income increased to $51.7 million, a $22.1 million improvement over the prior year driven by acquisitions and foreign currency benefits.
The Caribbean business reported a volume increase of 1.3 percent driven mainly by Puerto Rico. Net sales were $64.6 million, up 4 percent with a 3.7 percent improvement in pricing. While cost of goods sold per unit increased 3.8 percent, gross profit increased 1 percent to $16.3 million in the quarter. Caribbean selling, delivery and administrative costs decreased modestly, down 2 percent, resulting in operating income of $1.2 million, a 50 percent improvement over the prior year.
Outlook
The company is raising its 2008 adjusted EPS guidance to a range of $1.92 to $1.96 from $1.77 to $1.83. Consistent with the company's previous guidance, the EPS outlook includes an estimated $0.01 benefit related to the impact of the 53rd week offset by a $0.01 reduction related to special charges. This raised outlook includes an estimated mid-single digit currency benefit to 2008 operating income, offset, in part, by reinvestments in our Central and Eastern European business.
Conference Call
PepsiAmericas will hold its second quarter 2008 earnings conference call at 10:00 AM CDT today, Tuesday, July 22, 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 our website.
PepsiAmericas is the world's second-largest manufacturer, seller and distributor of PepsiCo beverages with operations in 19 U.S. states; Central and Eastern Europe, including Ukraine, Poland, Romania, Hungary, the Czech Republic and Slovakia; and the Caribbean. For more information on PepsiAmericas, please visit our website.
Cautionary Statement
This release contains certain forward-looking statements of expected future developments, as defined in the Private Securities Litigation Reform Act of 1995. The forward-looking statements in this release refer to our expectations regarding continuing operating improvement and other matters. These forward-looking statements reflect our expectations and are based on currently available data; however, actual results are subject to future risks and uncertainties, which could materially affect actual performance. Risks and uncertainties that could affect such 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, including tax laws; cost and outcome of environmental claims; availability and cost of capital, including changes in our debt ratings; labor and employee benefit costs; unfavorable foreign currency rate fluctuations; cost and outcome of legal proceedings; integration of acquisitions; failure of information technology systems; and general economic, business and political conditions in the countries and territories where we operate. For further information, please see "Risk Factors" in our 2007 Annual Report on Form 10-K.
Contacts
Investor Relations
Sara Zawoyski
612.661.3830
Media Relations
Mary Viola
847.598.2870