Exhibit 99.1
The Pepsi Bottling Group Delivers Balanced Topline Growth across
Geographies and Solid Third Quarter Earnings
SOMERS, N.Y.--(BUSINESS WIRE)--Oct. 3, 2006--The Pepsi Bottling Group, Inc.
(NYSE: PBG) today reported third quarter 2006 net income of $207 million, or
diluted earnings per share (EPS) of $0.86. These results include a $0.04 EPS
expense due to the 2006 adoption of FAS 123(r) Share-Based Payment and a $0.05
EPS net gain due to income tax law changes. In the third quarter 2005, PBG
reported net income of $205 million, or $0.82 of EPS, which included a net
pretax gain of $16 million from the high fructose corn syrup (HFCS) litigation
settlement, or $0.04 of EPS on an after-tax basis.
"PBG delivered another solid quarter in what's shaping up to be a great
year. Each of our businesses contributed to our strong results," said Eric J.
Foss, PBG President and Chief Executive Officer. "In the U.S. and Canada, our
broad portfolio of non-carbonated products fueled our growth, with Lipton Iced
Teas, Starbucks Frappuccino and energy drinks leading the way. We were very
pleased with the strong performance we saw in the non-measured channels where we
believe our ongoing work in the area of customer service is helping to boost our
results. This was further validated by the positive movement we saw in our
annual customer satisfaction survey, which was completed this past quarter."
Mr. Foss continued, "Our business in Europe delivered outstanding results
in the third quarter, with volume and profit up significantly. In Mexico, our
ongoing work in the area of revenue management is beginning to gain traction,
with solid net revenue per case growth and notable profit improvement for the
quarter."
-- The Company generated another quarter of strong revenue growth in all
geographic segments, up eight percent on a worldwide basis with one
percentage point coming from acquisition territories.
-- PBG's worldwide physical case volume increased two percent in the
third quarter. Volume in its U.S. and Canada segment improved two
percent as well. PBG's European business delivered an impressive
eight-percent volume growth. In Mexico, physical case volume was down
one percent for the quarter, though the Company's two-year growth rate
was up six percent. All volume results are on a constant territory
basis. (See Editor's Note.)
-- The Company continued its solid revenue management track record,
delivering worldwide net revenue per case growth of four percent for
the quarter. PBG's U.S. business generated a three-percent increase.
-- Worldwide reported operating income was down three percent in the
third quarter. This result includes the four-percentage point negative
impact of FAS 123(r) and reflects the lapping of the four-percentage
point net gain from the high fructose corn syrup litigation proceeds
included in PBG's 2005 results. Excluding these items, worldwide
operating income grew five percent, driven by strong growth in Europe
as well as improved profitability in Mexico.
Q3 Operating Q3 2006 EPS Q3 2005 EPS
Income Growth
Rates
- ----------------------------------------------------------------------
Reported Results (3%) $0.86 $0.82
- ----------------------------------------------------------------------
Tax Law Change Gain - ($0.05) -
- ----------------------------------------------------------------------
Subtotal - $0.81 -
- ----------------------------------------------------------------------
Impact of FAS 123(r) +4% $0.04 -
- ----------------------------------------------------------------------
Net Gain from HFCS litigation
settlement - ($0.04)
- ----------------------------------------------------------------------
Lapping of Net Gain from HFCS
litigation settlement +4%
- ----------------------------------------------------------------------
Comparable Results +5% $0.85 $0.78
- ----------------------------------------------------------------------
Physical case volume growth in the U.S. was helped by a combination of
innovation and strong marketplace execution. The Company's U.S. take-home volume
was up two percent, while cold drink was flat in the third quarter. PBG Europe's
eight-percent volume growth came from strong sales in Russia and Turkey, where
the Company's carbonated and non-carbonated portfolios both performed well. In
Mexico, carbonated soft drinks were down one percent on a physical case basis,
though on an eight-ounce basis volume was flat. PBG Mexico's water business was
also soft in the quarter, with bottled water down two percent and jug water
volume down four percent. These compare to double-digit volume growth in the
third quarter of last year.
Each of PBG's geographic segments delivered net revenue per case
improvement, reflecting the Company's strong focus on revenue management. In the
U.S., the three-percent growth was driven primarily by rate increases.
PBG's worldwide cost of goods sold (COGS) per case increased five percent
in the third quarter. Gross profit improved six percent in total dollars, while
gross profit per case was up two percent in the third quarter.
The Company's selling, delivery and administrative (SD&A) expenses grew
nine percent on a worldwide basis, including a one-and-one-half percentage point
increase due to the impact of FAS 123(r). An additional one-and-one-half
percentage point of this growth comes from lapping the benefit of the HFCS
litigation settlement proceeds included in PBG's third quarter 2005 results.
During the third quarter, PBG repurchased 2.2 million shares of common
stock. Year to date, the Company has repurchased 10 million shares.
PBG expects to generate worldwide volume growth of about four percent in
2006, 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-percentage 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. Reported diluted EPS are forecast to be in the
range of $1.90 to $1.93, which includes the $0.18 per share expense from FAS
123(r) and the $0.05 EPS gain from the tax law changes in the third quarter.
Excluding the gain from the tax law changes, diluted EPS are projected to be
$1.85 to $1.88. PBG 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 third quarter 2006 earnings discussion with
financial analysts on October 3rd 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" 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 financial 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 provide investors with a meaningful year-over-year comparison of the
Company's financial performance and when management uses the non-GAAP financial
measures to evaluate the Company's financial performance against internal
budgets and targets. Importantly, the Company believes non-GAAP financial
measures should be considered in addition to, and not in lieu of, GAAP financial
measures. These non-GAAP financial measures may be different from non-GAAP
financial 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 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 third quarter actual results and its 2006 outlook relating to
diluted earnings per share (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 financial 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
financial measures are useful for evaluating the Company's core operating
results and facilitating comparison across reporting periods.
High Fructose Corn Syrup (HFCS) Litigation Settlement
During the third quarter of 2005, the Company recorded a gain, net of
strategic spending initiatives, related to the settlement of the HFCS class
action lawsuit. The lawsuit related to purchases of high fructose corn syrup:
please see our Form 10-Q for the quarterly period ended September 3, 2005 for
further details. Management considers this settlement as an unusual and material
settlement of a type that the Company has not received in the past and does not
expect to receive in the near future. As a result of the HFCS settlement, the
Company decided to accelerate the implementation of strategic spending
initiatives into 2005. Although strategic spending initiatives may not be
unusual or outside the ordinary course of business in a general sense, the
timing of the spending was unusual as such initiatives would not have been
accelerated into 2005 without the HFCS settlement. As a result, in order to
provide investors with a meaningful year-over-year comparison, the Company has
presented its third quarter 2005 actual results under two methods - on a
reported basis, which includes the impact of the net HFCS settlement and on an
adjusted basis, which excludes the impact of the net HFCS settlement.
Tax Law Changes
During the third quarter of 2006, tax rate changes were enacted in Canada,
Turkey, and in various U.S. jurisdictions resulting in a net decrease in income
tax expense. Management believes that presentation of results excluding these
tax law changes provides meaningful supplemental information to both management
and investors that is indicative of the Company's core operating results across
reporting periods. As a result, the Company has presented its third quarter
actual results relating to EPS under two methods - on a reported basis, which
includes the impact of these tax law changes and on an adjusted basis, which
excludes the impact of the tax law changes.
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 36 Weeks Ended
------------------ ------------------
Sept. 9, Sept. 3, Sept. 9, Sept. 3,
2006 2005 2006 2005
-------- -------- -------- --------
Net revenues $3,460 $ 3,214 $ 8,965 $ 8,223
Cost of sales 1,851 1,695 4,770 4,306
-------- -------- -------- --------
Gross profit 1,609 1,519 4,195 3,917
Selling, delivery and
administrative expenses 1,226 1,126 3,376 3,101
-------- -------- -------- --------
Operating income 383 393 819 816
Interest expense, net 62 56 186 169
Other non-operating expenses
(income), net 1 (1) 11 -
Minority interest 24 24 48 47
-------- -------- -------- --------
Income before income taxes 296 314 574 600
Income tax expense 89 109 185 208
-------- -------- -------- --------
Net income $ 207 $ 205 $ 389 $ 392
======== ======== ======== ========
Basic earnings per share $ 0.88 $ 0.84 $ 1.65 $ 1.60
======== ======== ======== ========
Weighted-average shares
outstanding 235 243 236 245
Diluted earnings per share $ 0.86 $ 0.82 $ 1.61 $ 1.55
======== ======== ======== ========
Weighted-average shares
outstanding 242 250 242 252
THE PEPSI BOTTLING GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
in millions, unaudited
36 Weeks Ended
----------------------
Sept. 9, Sept. 3,
2006 2005
---------- ----------
Cash Flows - Operations
Net income $ 389 $ 392
Adjustments to reconcile net income to net
cash provided by operations:
Depreciation 434 420
Amortization 9 10
Stock based compensation 46 -
Changes in working capital and other non-cash
charges (85) 74
Casualty insurance payments (47) (45)
Pension contributions (1) (30)
Other, net (40) (51)
---------- ----------
Net Cash Provided by Operations 705 770
---------- ----------
Cash Flows - Investments
Capital expenditures (525) (489)
Proceeds from sale of property, plant and
equipment 6 20
Acquisitions of bottlers, net of cash acquired (33) (1)
Other investing activities, net 8 1
---------- ----------
Net Cash Used for Investments (544) (469)
---------- ----------
Cash Flows - Financing
Borrowing activities, net 415 (35)
Dividends paid (64) (44)
Excess tax benefit from exercise of stock
options 17 -
Treasury stock transactions (167) (259)
---------- ----------
Net Cash Provided by (Used for) Financing 201 (338)
---------- ----------
Effect of Exchange Rate Changes on Cash and
Cash Equivalents (2) (1)
---------- ----------
Net Increase (Decrease) in Cash and Cash
Equivalents 360 (38)
Cash and Cash Equivalents - Beginning of Period 502 305
---------- ----------
Cash and Cash Equivalents - End of Period $ 862 $ 267
========== ==========
Supplemental Information
- -----------------------------------------------
Capital expenditures incurred (487) (444)
Change in accounts payable related to capital
expenditures (38) (45)
---------- ----------
Cash paid for capital expenditures (525) (489)
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
Sept. 9, Dec. 31,
2006 2005
----------- ---------
Assets (unaudited)
Current Assets
Cash and cash equivalents $ 862 $ 502
Accounts receivable, net 1,736 1,186
Inventories 638 458
Prepaid expenses and other current assets 262 266
----------- ---------
Total Current Assets 3,498 2,412
Property, plant and equipment, net 3,747 3,649
Other intangible assets, net 3,804 3,814
Goodwill 1,547 1,516
Other assets 146 133
----------- ---------
Total Assets $ 12,742 $ 11,524
=========== =========
Liabilities and Shareholders' Equity
Current Liabilities
Accounts payable and other current liabilities $ 1,948 $ 1,583
Short-term borrowings 163 426
Current maturities of long-term debt 514 589
----------- ---------
Total Current Liabilities 2,625 2,598
Long-term debt 4,741 3,939
Other liabilities 1,142 1,027
Deferred income taxes 1,362 1,421
Minority interest 563 496
----------- ---------
Total Liabilities 10,433 9,481
----------- ---------
Shareholders' Equity
Common stock, par value $0.01 per share:
Authorized 900 shares, issued 310 shares 3 3
Additional paid-in capital 1,733 1,709
Retained earnings 2,601 2,283
Accumulated other comprehensive loss (224) (262)
Deferred compensation - (14)
Treasury stock: 74 shares and 71 shares at
September 9, 2006 and December 31, 2005,
respectively, at cost (1,804) (1,676)
----------- ---------
Total Shareholders' Equity 2,309 2,043
----------- ---------
Total Liabilities and Shareholders'
Equity $ 12,742 $ 11,524
=========== =========
The Pepsi Bottling Group, Inc.
Third Quarter 2006 Earnings Release
Segment Data by Quarter (unaudited)
(in millions)
12 Weeks Ended
----------------------
Sept. 9, Sept. 3, Growth vs.
2006 2005 Prior Year*
-----------------------------------
Net Revenues
- ----------------------------------
U.S./Canada $ 2,559 $ 2,397 7%
Europe 554 487 14%
Mexico 347 330 5%
-----------------------------------
Total net revenues $ 3,460 $ 3,214 8%
===================================
Operating Income
- ----------------------------------
U.S./Canada $ 281 $ 311 -10%
Europe 71 53 36%
Mexico 31 29 5%
-----------------------------------
Total operating income 383 393 -3%
Interest expense, net 62 56 11%
Other non-operating expenses **NM
(income), net 1 (1)
Minority interest 24 24 -2%
-----------------------------------
Income before income taxes $ 296 $ 314 -6%
===================================
36 Weeks Ended
----------------------
Sept. 9, Sept. 3, Growth vs.
2006 2005 Prior Year*
-----------------------------------
Net Revenues
- ----------------------------------
U.S./Canada $ 7,017 $ 6,453 9%
Europe 1,088 988 10%
Mexico 860 782 10%
-----------------------------------
Total net revenues $ 8,965 $ 8,223 9%
===================================
Operating Income
- ----------------------------------
U.S./Canada $ 697 $ 728 -4%
Europe 61 45 35%
Mexico 61 43 43%
-----------------------------------
Total operating income 819 816 0%
Interest expense, net 186 169 10%
Other non-operating expenses, net 11 - **NM
Minority interest 48 47 1%
-----------------------------------
Income before income taxes $ 574 $ 600 -4%
===================================
* Percentage change calculated using whole dollar amounts
** calculation not meaningful
For the twelve and thirty-six weeks ended September 9, 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