MINNEAPOLIS – 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
Revenue increased to $4.5 billion, up 13 percent, with 5.6 percentage points contributed by acquisitions, 2 percentage points driven by foreign currency translation and the remainder driven by worldwide net pricing gains and strong volume growth in Central Europe.
Volume improved 7.8 percent for the year, driven mainly by acquisitions. Constant territory volume was essentially flat, as 7.9 percent organic volume growth in Central Europe was offset by a domestic decline of 1.4 percent.
Average net selling price increased 4.8 percent, including a nearly 2 percentage point reduction related to country mix, reflective of the company’s acquisitions. The increase was led by a strong U.S. net selling price increase of over 5 percent.
Cost of goods sold per unit increased 3.9 percent, driven by higher input costs across all geographies. Country mix lowered cost of goods sold per unit by almost one and a half percentage points.
Gross profit grew over 13 percent to more than $1.8 billion, with approximately 5 percentage points of growth from acquisitions. The remainder was driven by worldwide pricing improvements in all geographic segments, which offset the higher cost of goods sold.
Operating income increased 23 percent to $436.1 million, including acquisitions. These results included special charges totaling $6.3 million, compared to special charges of $13.7 million included in prior year operating income of $356 million. Foreign currency translation contributed 7 percentage points to the overall growth.
Fourth Quarter Worldwide Financial Highlights
Revenue increased 14 percent to $1.1 billion, with nearly 8 percentage points contributed by acquisitions.
Volume improved 11 percent in the quarter, driven mainly by acquisitions as volume growth in Central Europe was offset, in part, by U.S. volume declines. Constant territory volume was up 0.6 percent.
Average net selling price increased 3.7 percent, including a 2 percentage point reduction related to country mix.
Cost of goods sold per unit increased 2.6 percent in the quarter with U.S. costs moderating from previous quarters and with minimal impact from acquisitions.
Operating income increased 22 percent to $92.5 million, including acquisitions. These results included special charges totaling $2.2 million, compared to special charges of $11.5 million included in prior year operating income of $75.8 million. Foreign currency translation contributed 10 percentage points to the overall growth.
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.
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.