SOMERS, N.Y.–Dec. 13, 2007–The Pepsi Bottling Group (NYSE: PBG) today announced financial guidance for 2008 and beyond, while also raising the Company’s diluted earnings per share and operating free cash flow guidance for the current fiscal year.
At PBG Investor Day 2007, being held in New York City later this morning, the Company will tell members of the financial community that it is successfully executing its strategy and delivering strong results across the business.
PBG expects to achieve top-line growth of about six percent over the next three years (2008-2010), while achieving operating profit growth of five to seven percent and diluted earnings per share growth in the high single digits over the same period.
While the Company expects commodity cost pressures to continue and contribute to a five to six percent increase in its cost of goods sold per case in 2008, it expects next year’s adjusted operating profit to increase four to six percent and adjusted diluted earnings per share to be $2.30 to $2.38.
The Company will also confirm its 2007 full-year guidance of adjusted operating profit growth of 10 to 11 percent, including the three percentage point impact from the consolidation of the Russian joint venture. In addition, the Company raised its adjusted diluted earnings per share guidance from a range of $2.15 to $2.18 to a range of $2.17 to $2.20. PBG also now expects operating free cash flow to exceed $570 million as compared to the Company’s previous guidance of $560 to $570 million.
"Effective revenue and margin management, operational excellence through cost productivity, and investments for future growth have enabled us to create great value for our shareholders," said PBG President and CEO Eric Foss. "PBG has a proven track record of success, a powerful set of strengths that distinguish us from competitors, and a promising growth outlook. Our combination of great brands, great go-to-market system and great people will fuel our continued success moving forward."
The chart below details the Company’s 2008 and long-term financial
Volume + 2-3% ~ 3%
Net Revenue Per Case + 3-4% ~ 3%
Operating Profit + 4-6% + 5-7%
Diluted Earnings Per Share $2.30 – $2.38 High Single-Digit Growth
Operating Free Cash Flow + 4-6% + 5-7%
Return On Invested Capital + 20-30 bps + 30-40 bps
In addition to presentations from Foss and PBG CFO Al Drewes, attendees will also hear from senior management representing each of the Company’s major geographies.
— PBG North America President Rob King will emphasize the
Company’s focus on driving balanced and profitable top-line
growth in the United States and Canada.
— PBG Europe President Yiannis Petrides will outline the
Company’s strategy for fully capturing the growth potential in
— PBG Mexico President Pablo Lagos will provide an overview of
plans to drive sustainable profit growth in Mexico.
"We are building upon our recent success by executing a strategy that creates value for our key stakeholders, including customers, employees and shareholders," Foss said. "At the same time, we’re committed to improving the communities in which we do business by implementing environmentally friendly business practices and supporting other important causes. By firing on all of these cylinders, PBG has strong prospects for future growth."
The webcast of today’s meeting and accompanying presentation materials can be accessed by visiting the Investor Relations section of www.pbg.com
. The meeting will begin at 8:00 a.m. EDT, and will also be archived on the site for later viewing.
The Pepsi Bottling Group, Inc. is the world’s largest manufacturer, seller and distributor of Pepsi-Cola beverages, with annual sales of nearly $13 billion. With more than 70,000 employees worldwide, PBG has operations in the U.S., Canada, Mexico, Russia, Spain, Turkey and Greece. For more information, visit the Company’s website at www.pbg.com
Statements made in this press release that relate to future performance or financial results of the Company are forward-looking statements which involve uncertainties that could cause actual performance or results to materially differ. PBG undertakes no obligation to update any of these statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as to the date hereof. Accordingly, any forward-looking statement should be read in conjunction with the additional information about risks and uncertainties set forth in PBG’s Securities and Exchange Commission reports, including PBG’s annual report on Form 10-K for the year ended December 30, 2006.
We prepare our consolidated financial statements in conformity with accounting principles generally accepted in the United States of America (U.S. GAAP). In an effort to provide investors with additional information regarding the Company’s results and to provide a meaningful year-over-year comparison of the Company’s financial performance, we sometimes use non-GAAP financial measures as defined by the Securities and Exchange Commission. The differences between the U.S. GAAP and non-GAAP financial measures are reconciled in the text of the press release. In presenting comparable results, the Company discloses non-GAAP financial measures when it believes such measures will be useful to investors in evaluating the Company’s underlying business performance. Management uses the non-GAAP financial measures to evaluate the Company’s financial performance against internal budgets and targets (including under the Company’s incentive compensation plans). In addition, management internally reviews the results of the Company excluding the impact of certain items as it believes that these non-GAAP financial measures are useful for evaluating the Company’s core operating results and facilitating comparison across reporting periods. Importantly, the Company believes non-GAAP financial measures should be considered in addition to, and not in lieu of, U.S. GAAP financial measures. The Company’s non-GAAP financial measures may be different from non-GAAP financial measures used by other companies.
Items Affecting Comparability in 2007 Guidance:
Reversal of Net Tax Contingencies
During the third quarter of 2007, PBG recorded a non-cash benefit of approximately $46 million or $0.20 of diluted earnings per share due to the reversal of net tax contingencies associated with the expiration of the statute of limitations on the IRS audit of our 2001 and 2002 tax returns. The Company has presented its 2007 guidance relating to diluted earnings per share (EPS) on an adjusted basis, which excludes the impact of the reversal.
Organizational Realignment Charge
In the third quarter of 2007, PBG announced a realignment in the Company’s organization. The total charge for the realignment is expected to be about $30 to $35 million pre-tax. PBG recorded a $20 million pre-tax restructuring charge in the third quarter of 2007. The remaining charges will be taken in the fourth quarter of 2007 and the first quarter of 2008. PBG expects the full year 2007 impact of the restructuring charges to be about $0.08 per diluted share after-tax and minority interest.
The Company has presented its 2007 and 2008 guidance relating to diluted EPS and operating profit change on an adjusted basis, which excludes the impact of the organizational realignment charge.
Asset Rationalization Charge
During the fourth quarter of 2007, PBG will record a pre-tax charge of $20 to $30 million, or $0.05 to $0.08 per diluted share after-tax and minority interest relating to the disposal of select full service vending equipment. The remaining charges will be taken in 2008. The Company has presented its 2007 and 2008 guidance relating to diluted EPS and operating profit change on an adjusted basis, which excludes the impact of the asset rationalization charges.
The reconciliation to the Company’s 2007 and 2008 guidance relating to reported operating profit change and diluted EPS are set out below.
Operating Profit Diluted Earnings
Growth Rates Per Share
Reported 4% to 6% $2.21 to $2.27
Reversal of Net Tax Contingencies – $(0.20)
Organizational Realignment Charge 3% $0.08
Asset Rationalization Charge 2% to 3% $0.05 to $0.08
As Adjusted 10% to 11% $2.17 to $2.20
Operating Profit Diluted Earnings
Growth Rates Per Share
Reported 7% to 11% $2.21 to $2.36
Organizational Realignment Charge (2%) to (3%) $0.00 to $0.02
Asset Rationalization Charge (1%) to (2%) $0.02 to $0.07
As Adjusted 4% to 6% $2.30 to $2.38
PR Beverages Venture (the Russian joint venture)
On March 1, 2007, together with PepsiCo, PBG formed PR Beverages Limited, a joint venture that will enable us to strategically invest in Russia to accelerate our growth. We consolidate the venture into our financial results. The joint venture has no impact on diluted EPS.
Operating Free Cash Flow
The Company defines Operating Free Cash Flow (OFCF) as Cash Provided by Operations, less capital expenditures, plus excess tax benefits from the exercise of stock options.
The Company uses OFCF to evaluate the performance of its business and management considers OFCF an important indicator of the Company’s liquidity, including its ability to satisfy debt obligations, fund future acquisitions, pay dividends to common shareholders and repurchase Company stock.
OFCF is a non-GAAP financial measure and should be considered in addition to, not as a substitute for Cash Provided by Operations as well as other measures of financial performance and liquidity reported in accordance with U.S. GAAP. The Company’s OFCF may not be comparable to similarly titled measures reported by other companies.
PBG expects its full-year 2007 OFCF to exceed $570 million. We anticipate capital expenditures to exceed $800 million and Cash Provided by Operations plus the excess tax benefits from the exercise of stock options to be about $1.4 billion.