Exhibit 99.1
The Pepsi Bottling Group Delivers Another Quarter of Double-Digit
Revenue Growth;
Company Raises Full-Year Earnings Guidance on Strength of Results
SOMERS, N.Y.--(BUSINESS WIRE)--July 11, 2006--The Pepsi Bottling
Group, Inc. (NYSE:PBG) today reported second quarter 2006 net income
of $148 million, or diluted earnings per share (EPS) of $0.61,
including a $0.04 EPS expense due to the 2006 adoption of FAS 123(r)
Share-Based Payment and a $0.03 EPS expense related to the devaluation
of the Turkish lira. Excluding these expenses, PBG delivered diluted
EPS of $0.69 for the second quarter. These results compare to reported
net income in the second quarter 2005 of $148 million, or $0.59 per
diluted share.
-- PBG delivered robust revenue growth, up 10 percent on a
worldwide basis. Revenue improved in each of the Company's
geographic segments.
-- PBG grew its worldwide physical case volume by four percent in
the second quarter. PBG's U.S. and Canada segment delivered a
five-percent volume increase, primarily driven by strong
non-carbonated beverage sales. The Company's European business
generated six-percent volume growth and its Mexico operations
turned in a two-percent volume improvement on a physical case
basis. All volume results are on a constant territory basis.
(See Editor's Note.)
-- Worldwide net revenue per case was up four percent for the
quarter, including a three-percent improvement in the U.S.
-- Reported operating income increased four percent in the second
quarter including the six-percent negative impact of FAS
123(r). Excluding this expense, operating income was up 10
percent, with strong performance in each of PBG's segments.
-- As a result of its strong performance year-to-date, PBG is
raising its full-year volume and earnings guidance. The
Company is raising its operating free cash flow expectations
as well.
"We're very pleased with the continued growth we've seen in our
topline performance," said John T. Cahill, PBG Chairman and Chief
Executive Officer. "In the U.S. and Canada, our non-carbonated
beverages were the preferred choice of consumers, growing at a
double-digit rate. Significant distribution gains for Lipton Iced Tea,
Tropicana juice drinks and our energy portfolio fueled our U.S. volume
improvement this quarter, while Canada benefited from Lipton and Dole
innovation. We saw similar strength in our U.S. water business, with
double-digit growth in both cold drink and take-home volume. Our total
carbonated soft drink business was about flat in the U.S., but
trademark Mountain Dew was a stand-out with mid-single-digit growth.
We also continued our progress in advancing our Customer Connect
service agenda. Among other things, this work is helping us reduce
out-of-stocks throughout the supply chain, further boosting our volume
growth."
Mr. Cahill continued, "Our business in Mexico delivered
double-digit revenue growth in the second quarter, which led to robust
profit results. In Europe, our topline results were solid as well, led
by our businesses in Russia and Turkey. These two markets continue to
be growth engines for our European business with steady volume
increases in carbonated and non-carbonated beverages."
In the U.S., another quarter of outstanding execution in the
marketplace drove PBG's physical case volume growth, which was up five
percent in the second quarter. Cold drink volume grew three percent
and the Company's take-home business accelerated at twice that rate,
up six percent for the quarter. PBG Europe's six-percent increase
reflects solid growth in carbonated and double-digit volume growth in
non-carbonated beverages. In Mexico, carbonated soft drinks were up
four percent on an eight-ounce basis reflecting the success of the
upsizing initiative PBG introduced in the Mexico City area earlier
this year. On a physical case basis, carbonated soft drinks were
slightly positive in the quarter. Bottled water volume increased eight
percent and jug water volume was down one percent.
The Company's net revenue per case growth was solid across all of
its geographic segments. The three-percent growth in the U.S. was
driven by rate increases.
In the second quarter, PBG's cost of goods sold (COGS) per case
continued to follow the same trends from the previous quarter,
increasing six percent. Gross profit improved eight percent in total
dollars over the prior year. Gross profit per case was up three
percent in the second quarter.
The Company's selling, delivery and administrative (SD&A) expenses
grew nine percent in the second quarter, including a two-percent
increase due to the impact of FAS 123(r). Stronger than expected
volume growth as well as fuel and pension expense increases were the
primary drivers of this growth.
PBG's second quarter results include a $9 million pre-tax expense
related to the nearly 20-percent devaluation of the Turkish lira. This
resulted in a $0.03 EPS expense and was driven primarily by PBG's U.S.
dollar-denominated liabilities in Turkey.
During the second quarter, PBG repurchased 3.6 million shares of
common stock. Year to date, the Company has repurchased 7.9 million
shares.
PBG has made upward adjustments to its volume and financial
guidance for fiscal year 2006. It now expects to generate worldwide
volume growth of about four percent for the year, with the U.S.
growing around three percent. The Company believes its reported
operating income will be down one to up one percent for the year
including the seven-point negative impact from the adoption of FAS
123(r). Excluding this impact, adjusted operating income is likely to
grow six to eight percent for the year. Diluted EPS are projected to
be $1.82 to $1.88 on a reported basis, which includes the $0.18 per
share impact from FAS 123(r). On an adjusted basis, diluted EPS are
forecast at $2.00 to $2.06. PBG now expects to generate operating free
cash flow in the range of $510 to $530 million for the year.
The Pepsi Bottling Group, Inc. (www.pbg.com) is the world's
largest manufacturer, seller and distributor of Pepsi-Cola beverages
with operations in the U.S., Canada, Greece, Mexico, Russia, Spain and
Turkey. To receive company news releases by e-mail, please visit
www.pbg.com.
Listen in live to PBG's second quarter 2006 earnings discussion
with financial analysts on July 11th at 11 a.m. (EDT) at
http://www.pbg.com.
Editor's Note:
Constant territory calculations assume a 52-week year and all
significant acquisitions made in the prior year were made at the
beginning of that year. These calculations exclude all significant
acquisitions made in the current year. PBG's fiscal year ends on the
last Saturday in December and, as a result, a 53rd week was added to
fiscal year 2005. Fiscal year 2006 has 52 weeks.
Forward-Looking Statements:
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 31, 2005.
Non-GAAP Measures
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 we sometimes use
"non-GAAP" financial measures, as defined by the Securities and
Exchange Commission. Non-GAAP financial measures in this press release
are generally accompanied by the most directly comparable GAAP
financial measure. The differences between the GAAP and non-GAAP
measures are reconciled either in the text of the press release or in
the attachments. The Company presents "non-GAAP" financial measures
when it believes such measures will be useful to investors in
evaluating the Company's financial performance. Importantly, the
Company believes non-GAAP measures should be considered in addition
to, and not in lieu of, GAAP measures. These non-GAAP measures may be
different from non-GAAP measures used by other companies.
FAS 123(r)
Effective in 2006, the Company adopted FAS 123(r) Share-Based
Payment, which requires that all stock-based payments (including stock
options) be expensed based on the fair value of the awards at the time
of grant. Prior to 2006, in accordance with existing accounting
guidelines, the Company was not required to recognize this expense,
and the Company's financial results during fiscal year 2005 do not
reflect this expense. As a result, in order to provide investors with
a meaningful year-over-year comparison of the Company's financial
performance, the Company has presented its second quarter actual
results and its 2006 outlook relating to diluted EPS and operating
income change under two methods - on a reported basis, which includes
the impact of FAS 123(r) and on an adjusted basis, which excludes the
impact of FAS 123(r). Management uses the latter, non-GAAP measure, 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 FAS 123(r) as we believe that these
non-GAAP measures are useful for evaluating the Company's core
operating results and facilitating comparison across reporting
periods.
Foreign Exchange Loss
During the second quarter of 2006, PBG's Business Unit in Turkey
generated a $9 million pre-tax foreign exchange loss on its U.S.
denominated liabilities related to the nearly 20 percent devaluation
of the Turkish lira that occurred in May 2006. This devaluation
resulted in a $0.03 EPS charge in the quarter. Management believes
that a significant devaluation in a foreign currency, resulting in a
foreign exchange loss of this magnitude to PBG's results is unusual
and outside the ordinary course of our business. As a result, in order
to provide investors with a meaningful year-over-year comparison, the
Company has presented its second quarter diluted EPS results on a
reported basis and on an adjusted basis, which excludes the impact of
this foreign exchange loss.
Diluted Earnings Per Share - Second Quarter 2006
------------------------------------------------
Diluted
Earnings Per
Share
As Reported $0.61
Impact of FAS 123(r) 0.04
Foreign exchange loss 0.03
-------------------
As Adjusted $0.69*
-------------------
* Each line item of diluted earnings per share is calculated to
the fourth decimal place and then rounded to the second decimal place.
Both the impact of FAS 123(r) and the foreign exchange loss are
slightly higher than the amounts presented above.
Operating Free Cash Flow (OFCF)
Under FAS 123(r), excess tax benefits from the exercise of stock
options are now required to be included in Cash Provided by Financing
activities instead of Cash Provided by Operations. Therefore,
effective first quarter of 2006, the Company has revised its
definition of Operating Free Cash Flow (OFCF) to add back excess tax
benefits from the exercise of stock options. We now define 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
businesses, 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 measurement 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 2006 OFCF to be in the range of $510 to
$530 million. We anticipate capital expenditures of approximately $735
million and Cash Provided by Operations plus the excess tax benefits
from the exercise of stock options to be over $1.2 billion. We are
unable to separately estimate the excess tax benefits from the
exercise of stock options.
THE PEPSI BOTTLING GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
in millions, except per share amounts, unaudited
12 Weeks Ended 24 Weeks Ended
------------------- -------------------
June 17, June 11, June 17, June 11,
2006 2005 2006 2005
--------- --------- --------- ---------
Net revenues $ 3,138 $ 2,862 $ 5,505 $ 5,009
Cost of sales 1,666 1,495 2,919 2,611
-------- -------- -------- --------
Gross profit 1,472 1,367 2,586 2,398
Selling, delivery and
administrative expenses 1,157 1,064 2,150 1,975
-------- -------- -------- --------
Operating income 315 303 436 423
Interest expense, net 63 58 124 113
Other non-operating
expenses, net 10 1 10 1
Minority interest 18 17 24 23
-------- -------- -------- --------
Income before income taxes 224 227 278 286
Income tax expense 76 79 96 99
-------- -------- -------- --------
Net income $ 148 $ 148 $ 182 $ 187
======== ======== ======== ========
Basic earnings per share $ 0.63 $ 0.61 $ 0.77 $ 0.76
======== ======== ======== ========
Weighted-average shares
outstanding 235 245 236 246
Diluted earnings per share $ 0.61 $ 0.59 $ 0.75 $ 0.74
======== ======== ======== ========
Weighted-average shares
outstanding 241 252 242 253
THE PEPSI BOTTLING GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
in millions, unaudited
24 Weeks Ended
--------------------
June 17, June 11,
2006 2005
--------- ---------
Cash Flows - Operations
Net income $ 182 $ 187
Adjustments to reconcile net income to net
cash provided by operations:
Depreciation 285 274
Amortization 6 7
Stock based compensation 32 -
Changes in working capital and other
non-cash charges (178) (154)
Casualty insurance payments (31) (31)
Pension contributions (1) (20)
Other, net (26) (32)
-------- --------
Net Cash Provided by Operations 269 231
-------- --------
Cash Flows - Investments
Capital expenditures (359) (316)
Proceeds from sale of property, plant and
equipment 4 12
Acquisitions of bottlers, net of cash
acquired - (1)
Other investing activities, net 4 6
-------- --------
Net Cash Used for Investments (351) (299)
-------- --------
Cash Flows - Financing
Borrowing activities, net 510 209
Dividends paid (38) (25)
Excess tax benefit from exercise of stock
options 10 -
Treasury stock transactions (172) (214)
-------- --------
Net Cash Provided by (Used for) Financing 310 (30)
-------- --------
Effect of Exchange Rate Changes on Cash and Cash
Equivalents (5) 1
-------- --------
Net Increase (Decrease) in Cash and Cash
Equivalents 223 (97)
Cash and Cash Equivalents - Beginning of Period 502 305
-------- --------
Cash and Cash Equivalents - End of Period $ 725 $ 208
======== ========
Supplemental Information
- -------------------------
Capital expenditures incurred (337) (271)
Change in accounts payable related to capital
expenditures (22) (45)
-------- --------
Cash paid for capital expenditures (359) (316)
Note: Certain reclassifications were made to our 2005 Condensed
Consolidated Statement of Cash Flows to conform to the 2006
presentation.
THE PEPSI BOTTLING GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
in millions, except per share amounts
June 17, December 31,
2006 2005
---------- ------------
Assets (unaudited)
Current Assets
Cash and cash equivalents $ 725 $ 502
Accounts receivable, net 1,551 1,186
Inventories, net 647 458
Prepaid expenses and other current assets 278 266
---------- -----------
Total Current Assets 3,201 2,412
Property, plant and equipment, net 3,691 3,649
Other intangible assets, net 3,780 3,814
Goodwill 1,513 1,516
Other assets 144 133
---------- -----------
Total Assets $ 12,329 $ 11,524
========== ===========
Liabilities and Shareholders' Equity
Current Liabilities
Accounts payable and other current
liabilities $ 1,791 $ 1,583
Short-term borrowings 215 426
Current maturities of long-term debt 534 589
---------- -----------
Total Current Liabilities 2,540 2,598
Long-term debt 4,732 3,939
Other liabilities 1,101 1,027
Deferred income taxes 1,396 1,421
Minority interest 519 496
---------- -----------
Total Liabilities 10,288 9,481
---------- -----------
Shareholders' Equity
Common stock, par value $0.01 per share:
Authorized 900 shares, issued 310
shares 3 3
Additional paid-in capital 1,716 1,709
Retained earnings 2,420 2,283
Accumulated other comprehensive loss (277) (262)
Deferred compensation - (14)
Treasury stock: 75 shares and 71 shares
at June 17, 2006 and December 31, 2005,
respectively, at cost (1,821) (1,676)
---------- -----------
Total Shareholders' Equity 2,041 2,043
---------- -----------
Total Liabilities and Shareholders'
Equity $ 12,329 $ 11,524
========== ===========
The Pepsi Bottling Group, Inc.
Second Quarter 2006 Earnings Release
Segment Data by Quarter (unaudited)
(in millions)
12 Weeks Ended
----------------------
June 17, June 11, Growth vs.
2006 2005 Prior Year*
----------------------------------
Net Revenues
- -------------
U.S./Canada $ 2,422 $ 2,207 10%
Europe 386 356 8%
Mexico 330 299 11%
--------------------------------
Total net revenues $ 3,138 $ 2,862 10%
================================
Operating Income
- -----------------
U.S./Canada $ 275 $ 275 0%
Europe 12 8 41%
Mexico 28 20 44%
--------------------------------
Total operating income 315 303 4%
Interest Expense, net 63 58 11%
Other non-operating expense, net 10 1 **NM
Minority Interest 18 17 3%
--------------------------------
Income before income taxes $ 224 $ 227 -1%
================================
24 Weeks Ended
----------------------
June 17, June 11, Growth vs.
2006 2005 Prior Year*
----------------------------------
Net Revenues
- --------------
U.S./Canada $ 4,458 $ 4,056 10%
Europe 534 501 7%
Mexico 513 452 13%
--------------------------------
Total net revenues $ 5,505 $ 5,009 10%
================================
Operating Income/(Loss)
- -----------------------------------
U.S./Canada $ 416 $ 417 0%
Europe (10) (8) **NM
Mexico 30 14 128%
--------------------------------
Total operating income 436 423 3%
Interest Expense, net 124 113 10%
Other non-operating expenses, net 10 1 **NM
Minority Interest 24 23 3%
--------------------------------
Income before income taxes $ 278 $ 286 -3%
================================
* Percentage change calculated using whole dollar amounts
** calculation not meaningful
For the twelve and twenty-four weeks ended June 17, 2006, operating
income includes the impact of adopting FAS 123(r).
The comparable periods in 2005 have not been restated.
CONTACT: For The Pepsi Bottling Group, Inc.
Public Relations:
Kelly McAndrew, 914-767-7690
or
Investor Relations:
Mary Winn Settino, 914-767-7216