Purchase, N.Y., April 24 - PepsiCo reported first-quarter earnings per share of $0.70. The Company delivered strong operating results with 13% net revenue and 10% division operating profit growth.
Summary of PepsiCo First Quarter 2008 Results
% Growth Rate
Volume (Servings) 4
Revenue 13
Division Operating Profit 10
Net Income 5
Earnings Per Share 7
PepsiCo Chairman and CEO Indra Nooyi said, "We delivered a strong first quarter. Each of our operating divisions had positive results, and we are pleased with the performance of the total portfolio. During the quarter, we faced the challenge of a macroeconomic slowdown in the U.S. and continued global commodity inflation, but the strength and breadth of our global footprint and portfolio helped us deliver strong first quarter results. We drove growth in our global core trademarks like Lay's, Mountain Dew and Pepsi and delivered innovation like G2 and TrueNorth nuts in North America and Tropicana juice drinks in China, India and the U.K.
"At PepsiCo Americas Foods (PAF) the impact of commodity cost pressures were significant, but the combination of pricing and productivity actions delivered solid results. PAF's results were driven by strong performance in the Latin America Foods division (LAF), and solid volume growth at Frito-Lay North America (FLNA).
"PepsiCo Americas Beverages (PAB) continued their solid top- and bottom-line growth trend. Latin America was strong, but soft U.S. LRB category trends lowered North America volumes.
"PepsiCo International (PI) performed well on virtually every dimension. Volume gains in snacks and beverages were broad-based and balanced across the segments.
"During the quarter, we made significant progress to strengthen our platforms for future growth and profitability. In partnership with the Pepsi Bottling Group, we announced the acquisition of Lebedyansky, the largest juice company in Russia -- adding market leading, healthy juice brands to our portfolio in this large and growing market. We also completed a joint venture with the Strauss Group to add Sabra fresh, refrigerated dips to our North American snacks portfolio.
"In total, our first quarter was a solid start to the year, and we are reiterating our full-year outlook. While commodities and the economic outlook remain dynamic, we believe our pricing, productivity and investment strategies will allow us to continue to deliver on our long-term goals."
Summary of Division Reported Q1 2008 Results
% Growth Rate
Volume Revenue Division
Operating
Profit
PAF 3 13 8
FLNA 2 7 4
QFNA 0 7 7
Latin America Foods 8 37 27
PAB (0.6) 6 7
PI 11 / 15* 27 26
UK/Europe 8 / 25* 23 18
Middle East/Africa/Asia 15 / 11* 30 32
Total PepsiCo 4 / 4* 13 10
* snacks/beverages
PepsiCo Americas Foods (PAF) grew revenue 13% and operating profit 8%. Volume increased 3% and net revenue grew 13% reflecting volume growth, positive net pricing and favorable mix. In spite of higher commodity costs, PAF delivered 8% operating profit growth and strong overall performance.
FLNA volume grew 2%. Volume growth was driven by mid-single-digit growth in trademark Lay's and high-single-digit growth in trademark Cheetos and dips, partially offset by double-digit declines in Quaker rice cakes and a low- single-digit decline in trademark Doritos, which was overlapping 13% prior year growth. Revenue at FLNA grew 7%, reflecting volume growth and the first phase of net pricing gains primarily in the form of weight-outs. Operating profit grew 4%, driven by net revenue growth, partially offset by higher commodity costs.
In QFNA, cereal volume grew 3% driven by Ready-to-Eat Cereal and Quaker Oatmeal, offset by declines in Rice-A-Roni and Aunt Jemima. Revenue grew 7% as a result of pricing actions and favorable mix. Operating profit also grew 7%, reflecting revenue growth partially offset by increased raw material costs.
LAF volume grew 8%, including a double-digit increase in Argentina and high-single-digit growth in Gamesa -- and with a 3.5 point benefit from the acquisition of Lucky Snacks in Brazil. Weight-outs resulted in a low-single-digit decline in kilo volume at Sabritas, but its unit volume was up 2%. During the quarter, we accelerated volume in our recently acquired Lucky brands by fully leveraging their production capacity to compensate for disruptions resulting from a fire which destroyed a major Brazilian snacks facility. Revenue grew 37% driven by: net effective pricing; a 20 point benefit from both acquisitions and the consolidation of a snack joint venture; and a 5.5 point contribution from foreign currency. Operating profit grew 27%, fueled by net revenue growth, partially offset by higher commodity costs. Acquisitions and consolidations contributed 7 points, and foreign currency contributed 4 points.
PepsiCo Americas Beverages (PAB) grew revenue 6% and operating profit 7%. PAB volume decreased slightly during the quarter as a result of a 2% decline at PBNA, offset by a mid-single-digit volume increase in our Latin America markets. In our North America business, carbonated soft drinks (CSD) volume declined 3%, and non-carbonated beverages (NCB) volume was even with prior year. Within CSDs, trademark Mountain Dew continued to grow, but trademark Pepsi volume declined mid-single digits. NCB performance was led by a 6% increase in Gatorade sports drinks, offset by mid-single-digit declines in our juice and juice drinks portfolio and our base Aquafina water business.
In Latin America, volume was driven by mid-single-digit growth in the CSD portfolio and high-single-digit growth in NCBs.
PAB's net revenue grew 6%, driven by net pricing, favorable mix and price increases taken on Gatorade and CSD concentrate. Operating profit increased 7%, primarily reflecting net revenue growth. Foreign currency contributed 1 point to revenue and 2 points to operating profit.
PepsiCo International (PI) grew revenue 27% and operating profit 26%.
PI drove 11% snack and 15% beverage volume growth. Revenue grew 27%, fueled by strong volumes and effective net pricing. Operating profit increased 26%, including a substantial increase in advertising and marketing investment.
In the UK/Europe (UKEU) segment, broad-based snack volume growth of 8% was driven primarily by double-digit growth in Russia and high-single-digit growth in Spain. The U.K. based Walkers business had a volume decrease of less than 1%, reflecting the impact of price increases. Acquisitions increased snack volume by 1 point. UKEU beverage volume grew 25%, including 17 points from the Sandora acquisition and the expansion of the Pepsi Lipton Joint Venture. Poland, Romania and Russia all grew volume double digits, and UK beverages grew at a high-single-digit rate, reflecting strength in Tropicana.
UKEU net revenue increased 23%, reflecting volume growth and effective net pricing; acquisitions added 6 points and foreign currency contributed 9 points. Operating profit grew 18%, driven primarily by the net revenue growth partially offset by increased raw material costs. Operating profit was reduced 3 points as a result of acquisitions and was increased 10 points by foreign currency.
In the Middle East/Africa/Asia (MEAA) segment, snack volume grew 15%, led by double-digit growth across China, South Africa, the Middle East and India. In beverages, 11% volume growth in the MEAA segment reflected broad-based growth led by double-digit growth in China and the Middle East. Both CSDs and NCBs grew at double-digit rates. Net revenue increased 30%, reflecting volume growth and favorable effective net pricing; acquisitions and consolidations contributed 6 points (primarily reflecting the consolidation of a bottling joint venture in China) and foreign currency added 8 points. Operating profit grew 32% as a result of revenue growth, partially offset by higher raw material costs and increased advertising and marketing. Operating profit was increased 8 points by acquisitions and consolidations and 7 points by foreign currency.
Higher tax rate, net interest expense and corporate costs impacted EPS growth.
Corporate unallocated expenses increased $14 million in the quarter primarily due to: mark-to-market losses overlapping gains in the prior year; continued investment in our business transformation initiative; higher research and development costs; partially offset by lower deferred compensation costs. Lower deferred compensation costs were offset by losses on the corresponding hedges recorded in interest income. Interest expense increased $16 million, reflecting higher net debt balances.
For the quarter, the reported tax rate was 26.7% versus 25.6% in the previous year; the increase in the rate reduced EPS growth by 2 percentage points.
For the Company in total, foreign exchange contributed 3 points to revenue and 2.5 points to division operating profit.
2008 GUIDANCE
Company expects 2008 performance to be consistent with long-term targets.
For 2008, the Company expects 3% to 5% volume growth, high-single-digit net revenue growth and EPS of at least $3.72. The Company expects 9% to 10% total worldwide commodity cost inflation. The tax rate is expected to be about 27.5%.
Cash provided by operating activities is expected to be approximately $7.6 billion and capital spending about $2.7 billion. The Company intends to spend $4.3 billion in share repurchases.