Exhibit 99.1
The Pepsi Bottling Group Reports Third Quarter 2007 Results
-- Company Reports Record Financial Results; Raises Full-Year EPS
Guidance
-- Reported Diluted Earnings Per Share of $1.12, Strong
Comparable EPS Growth of 22% to $0.99
-- Comparable Operating Income Increase of 12% with Reported Up
13%
-- Robust Revenue Growth of 8%
SOMERS, N.Y.--(BUSINESS WIRE)--Oct. 2, 2007--The Pepsi Bottling
Group, Inc. (NYSE: PBG) today reported third quarter 2007 revenue of
$3.7 billion, an eight percent increase over prior year. Reported net
income was $260 million, or diluted earnings per share (EPS) of $1.12.
These results include a net after-tax gain of approximately $31
million, or $0.14 per diluted share, as a result of the previously
announced non-cash tax benefit and restructuring charges. Excluding
these items, third quarter net income was $229 million or $0.99 per
diluted share. In the third quarter of 2006, PBG reported net income
of $207 million, or diluted EPS of $0.86, which included a $0.05 EPS
net gain due to income tax law changes.
Eric J. Foss, President and Chief Executive Officer of PBG, said,
"In the third quarter, we delivered record sales and comparable
operating income driven by outstanding performance in the U.S. and
Canada and in Europe, led by Russia. Our strong top-line growth, gross
profit per case improvement and disciplined cost management led to
solid profit and cash flow increases."
Mr. Foss continued, "The successful execution of our key
priorities produced double-digit EPS growth for the quarter prompting
us to raise our earnings outlook for the year. Our strategic
initiatives, our people and our geographic portfolio position us well
to capture growth opportunities and create value for our
shareholders."
Executive Summary
-- PBG's worldwide revenue increased eight percent in the quarter
driven by solid growth across each of the Company's geographic
segments.
-- Total worldwide physical case volume was up one percent.
Volume in the U.S. was flat. European volume grew four
percent, led by a 16 percent improvement in Russia. In Mexico,
volume declined one percent. All volume results are on a
constant territory basis. (See Editor's Note.)
-- The Company continued its strong track record of net revenue
per case growth across all of its geographic segments
highlighted by a four percent gain in the U.S.
-- Reported gross profit per case improved eight percent,
including a two percentage point increase from the
consolidation of its Russian joint venture with PepsiCo.
-- Reported worldwide operating income for the third quarter
increased 13 percent, led by strong growth in the U.S. and
Canada segment and Europe. Operating income in Mexico
decreased due to soft volume and higher cost of goods sold and
selling, delivery and administrative expenses. Foreign
currency translation contributed about three percentage points
of growth. The table below provides a summary of items
impacting operating income and EPS comparability.
-- The Company returned $161 million to shareholders through cash
dividends and repurchases of shares in the third quarter,
bringing the year-to-date total up to $413 million.
-- PBG raised its full year adjusted diluted EPS guidance from a
range of $2.02 to $2.07 to $2.15 to $2.18.
EPS(2)
------------------------
Q3 2007 Q3 2007 Q3 2006 Q3 2007
Operating Growth
Income Rates(1)
Growth
Rates(1)
- --------------------------------------------- ------------------------
Reported Results 13% $1.12 $0.86 31%
- --------------------------------------------- ------------------------
Reversal of Net Tax Contingencies - ($0.20) -
- --------------------------------------------- ------------------------
Restructuring Charge 5 $0.06 -
- --------------------------------------------- ------------------------
Russian Joint Venture (7) - -
- --------------------------------------------- ------------------------
Tax Law Change Gain - - ($0.05)
- --------------------------------------------- ------------------------
Comparable Results 12% $0.99 $0.81 22%
- --------------------------------------------- ------------------------
(1)Percentage change shown is rounded to the nearest whole number.
(2) Each line item of diluted earnings per share is calculated to
the fourth decimal place and then rounded to the second decimal place.
For Q3 2007, the restructuring charge is slightly higher and the
reversal of net tax contingencies is slightly lower than the amounts
presented above, resulting in a $0.01 rounding adjustment in the
comparable results line.
Financial Highlights
In the U.S., physical case volume was flat. Take-home volume was
up one percent and cold drink was down two percent.
In Mexico, volume declined one percent, with declines in CSD and
jug water volume mitigated by strong bottled water and non-carbonated
beverage growth. In Europe, volume grew four percent for the quarter
led by Russia, which had exceptional non-carbonated beverage growth of
over 20 percent.
Foreign currency translation contributed about two percentage
points of growth to net revenue, cost of goods sold (COGS) and
selling, delivery and administrative (SD&A) expenses. The net effect
on operating income was about three percentage points.
Worldwide net revenue per case improved seven percent, driven by
solid rate improvements across all segments.
Reported COGS per case increased six percent in the third quarter
including a one percentage point reduction from the Russian joint
venture. COGS performance reflected increases in concentrate and
sweetener costs. Gross profit per case grew eight percent as pricing
gains more than offset the COGS increase. The Russian joint venture
increased gross profit per case by two percentage points.
PBG's reported SD&A expenses grew seven percent in the third
quarter including a two percentage point increase from the pre-tax
restructuring charge of $20 million, or $0.06 per diluted share after
tax. This charge was in connection with the organizational realignment
announced on August 8, 2007 to adapt to changes in the marketplace and
improve operating efficiencies. Excluding the impact of the
restructuring charge, SD&A in the U.S. was flat as the Company
continued to benefit from its ongoing cost productivity initiatives.
2007 Guidance
As a result of strong performance year-to-date, the Company raised
its full year adjusted diluted EPS guidance range to $2.15 to $2.18
from $2.02 to $2.07. PBG's adjusted operating income is now expected
to grow 10 to 11 percent, as compared to previous guidance of seven to
nine percent. Consistent with the Company's prior guidance, this
outlook includes the three percentage point positive impact of
consolidating the Russian joint venture, the venture comprising
PepsiCo, Inc.'s concentrate and PBG's bottling businesses in Russia.
The venture has no impact on reported diluted EPS or cash flow.
PBG also raised its outlook for operating free cash flow by $20
million. Operating free cash flow is now forecasted to be $560 to $570
million, which includes cash restructuring expenses of approximately
$15 million. The Company expects capital expenditures for the year to
be approximately $780 million.
Due to changing customer and consumer demands, PBG has evaluated
the returns on its full service vending equipment. Effective October
1, 2007, the Company adopted a plan to improve the returns of its full
service vending business. As a result, the Company will record a
pre-tax charge of $40 to $50 million, which is predominately non-cash,
to dispose of select equipment. Approximately $20 to $30 million
pre-tax or $0.05 to $0.08 per diluted share after tax will be
recognized in the fourth quarter of 2007. The program will be
completed by the second quarter of 2008.
Subsequent to the end of the third quarter, Mexico enacted new tax
legislation that will take effect on January 1, 2008. PBG is currently
evaluating the impact of this law change to its financial statements.
The Pepsi Bottling Group, Inc. (www.pbg.com) is the world's
largest manufacturer, seller and distributor of Pepsi-Cola beverages.
With more than 70,000 employees and sales of nearly $13 billion, PBG
has operations in the U.S., Canada, Mexico, Russia, Spain, Turkey and
Greece. To receive company news releases by e-mail, please visit
www.pbg.com.
Listen in live to PBG's third quarter 2007 earnings discussion
with financial analysts on October 2nd 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.
Forward-Looking Statement:
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.
Non-GAAP Measures:
The Company prepares its 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, the Company sometimes uses 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 or in the attachments. 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 Results:
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 its 2001
and 2002 tax returns. The Company has presented its third quarter
results and its 2007 guidance relating to diluted earnings per share
(EPS) change under two methods - on a reported basis, which includes
the impact of the reversal of the net tax contingencies, and on a
comparable basis, which excludes the impact of the reversal.
Organizational Realignment Charge
During the third quarter of 2007, PBG recorded a $20 million
restructuring charge (a net impact of $15 million, or $0.06 of diluted
EPS, after taking into consideration tax treatment and minority
interest). PBG expects to be substantially complete with the
restructuring activities by the first quarter of 2008, recording an
estimated additional $8 million pre-tax in 2007 and the balance in
2008. PBG expects the full year impact of the restructuring charges to
be about $0.08 per diluted share after tax. The Company has presented
its third quarter results and its 2007 guidance relating to diluted
EPS and operating income change under two methods - on a reported
basis, which includes the impact of the organizational realignment
charge, and on a comparable basis, which excludes the impact of the
organizational realignment charge.
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 the Company to strategically
invest in Russia to accelerate its growth. PBG consolidates the
venture into its financial results. The Company has presented its
third quarter results relating to operating income change under two
methods - on a reported basis, which includes the impact of the
venture, and on a comparable basis, which excludes the impact of the
venture. The joint venture has no impact on diluted EPS.
Items Affecting Comparability in 2006 Results:
Tax Law Changes
During 2006, tax rate changes were enacted in Canada, Turkey, and
in various U.S. jurisdictions resulting in a net decrease in income
tax expense. The Company has presented its third quarter 2006 results
relating to diluted EPS under two methods - on a reported basis which
includes the impact of the tax law changes, and on a comparable basis,
which excludes the impact of the tax law changes.
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 be in the range of $560 to
$570 million. The Company anticipates capital expenditures of
approximately $780 million and Cash Provided by Operations plus the
excess tax benefits from the exercise of stock options to be over $1.3
billion. The Company is unable to separately estimate the excess tax
benefits from the exercise of stock options.
Items Affecting Comparability in Full Year 2007 Guidance:
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 relating to the disposal of select full service vending
equipment. The Company has presented its 2007 guidance relating to
diluted EPS on an adjusted basis, which excludes the impact of the
2007 asset rationalization charges. The reconciliation to the
Company's 2007 guidance is set out below.
2007 Guidance
Operating Income Diluted Earnings
Growth Rates Per Share
- ----------------------------------------------------------------------
Reported 4% to 6% $2.19 to $2.25
- ----------------------------------------------------------------------
Reversal of Net Tax Contingencies - ($0.20)
- ----------------------------------------------------------------------
Restructuring Charge 3% $0.08
- ----------------------------------------------------------------------
Asset Rationalization Charge 2% to 3% $0.05 - $0.08
- ----------------------------------------------------------------------
As Adjusted 10% to 11% $2.15 - $2.18
- ----------------------------------------------------------------------
THE PEPSI BOTTLING GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
in millions, except per share amounts, unaudited
12 Weeks Ended 36 Weeks Ended
-------------------- -------------------
September September September September
8, 9, 8, 9,
2007 2006 2007 2006
---------- --------- --------- ---------
Net revenues $3,729 $3,460 $9,555 $8,965
Cost of sales 2,003 1,872 5,171 4,828
---------- --------- --------- ---------
Gross profit 1,726 1,588 4,384 4,137
Selling, delivery and
administrative expenses 1,293 1,205 3,493 3,318
---------- --------- --------- ---------
Operating income 433 383 891 819
Interest expense, net 65 62 199 186
Other non-operating expenses
(income), net - 1 (2) 11
Minority interest 41 24 72 48
---------- --------- --------- ---------
Income before income taxes 327 296 622 574
Income tax expense 67 89 171 185
---------- --------- --------- ---------
Net income $ 260 $ 207 $ 451 $ 389
========== ========= ========= =========
Basic earnings per share $ 1.16 $ 0.88 $ 1.99 $ 1.65
========== ========= ========= =========
Weighted-average shares
outstanding 226 235 227 236
Diluted earnings per share $ 1.12 $ 0.86 $ 1.94 $ 1.61
========== ========= ========= =========
Weighted-average shares
outstanding 232 242 233 242
Note: Certain reclassifications were made to the 2006 Condensed
Consolidated Statements of Operations to conform to the 2007
presentation.
THE PEPSI BOTTLING GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
in millions, unaudited
36 Weeks Ended
--------------------------
September 8, September 9,
2007 2006
------------ -------------
Cash Flows - Operations
Net income $ 451 $ 389
Adjustments to reconcile net income to net
cash provided by operations:
Depreciation and amortization 457 443
Stock-based compensation 43 46
Changes in working capital and other non-
cash charges 16 (85)
Casualty insurance payments (48) (47)
Pension contributions (1) (1)
Other, net (44) (40)
------------ -------------
Net Cash Provided by Operations 874 705
------------ -------------
Cash Flows - Investments
Capital expenditures (563) (525)
Acquisitions, net of cash acquired (49) (33)
Proceeds from sale of property, plant and
equipment 9 6
Other investing activities, net 6 8
------------ -------------
Net Cash Used for Investments (597) (544)
------------ -------------
Cash Flows - Financing
Borrowing activities, net 115 415
Dividends paid (82) (64)
Excess tax benefit from exercise of stock
options 6 17
Treasury stock transactions, net (239) (167)
------------ -------------
Net Cash (Used for) Provided by Financing (200) 201
------------ -------------
Effect of Exchange Rate Changes on Cash and
Cash Equivalents 3 (2)
------------ -------------
Net Increase in Cash and Cash Equivalents 80 360
Cash and Cash Equivalents - Beginning of
Period 629 502
------------ -------------
Cash and Cash Equivalents - End of Period $ 709 $ 862
============ =============
Supplemental Information
- -------------------------------------------
Capital expenditures incurred (527) (487)
Change in accounts payable and other
current liabilities related to capital
expenditures (36) (38)
------------ -------------
Cash paid for capital expenditures (563) (525)
Note: Certain reclassifications were made to the 2006 Condensed
Consolidated Statement of Cash Flows to conform to the 2007
presentation.
THE PEPSI BOTTLING GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
in millions, except per share amounts
September 8, December 30,
2007 2006
------------ -------------
Assets (unaudited)
Current Assets
Cash and cash equivalents $ 709 $ 629
Accounts receivable, net 1,892 1,332
Inventories 641 533
Prepaid expenses and other current assets 253 255
------------ -------------
Total Current Assets 3,495 2,749
Property, plant and equipment, net 3,900 3,785
Other intangible assets, net 4,138 3,768
Goodwill 1,503 1,490
Other assets 177 135
------------ -------------
Total Assets $13,213 $11,927
============ =============
Liabilities and Shareholders' Equity
Current Liabilities
Accounts payable and other current
liabilities $ 2,147 $ 1,677
Short-term borrowings 498 357
Current maturities of long-term debt 11 17
------------ -------------
Total Current Liabilities 2,656 2,051
Long-term debt 4,762 4,754
Other liabilities 1,275 1,205
Deferred income taxes 1,211 1,293
Minority interest 938 540
------------ -------------
Total Liabilities 10,842 9,843
------------ -------------
Shareholders' Equity
Common stock, par value $0.01 per share:
Authorized 900 shares, issued 310 shares 3 3
Additional paid-in capital 1,787 1,751
Retained earnings (including $5 from the
impact of FIN 48 in 2007) 3,076 2,708
Accumulated other comprehensive loss (256) (361)
Treasury stock: 86 shares and 80 shares at
September 8, 2007
and December 30, 2006, respectively (2,239) (2,017)
------------ -------------
Total Shareholders' Equity 2,371 2,084
------------ -------------
Total Liabilities and Shareholders'
Equity $13,213 $11,927
============ =============
THE PEPSI BOTTLING GROUP, INC.
Third Quarter 2007 Earnings Release
Segment Data (unaudited)
(in millions)
12 Weeks Ended
---------------------------
September 8, September 9,
2007 2006
------------- -------------
Net Revenues
- -----------------------------------------
U.S. & Canada $2,665 $2,559
Europe 683 554
Mexico 381 347
------------- -------------
Worldwide net revenues $3,729 $3,460
============= =============
Operating Income
- -----------------------------------------
U.S.& Canada $ 300 $ 281
Europe 110 71
Mexico 23 31
------------- -------------
Worldwide operating income 433 383
Interest expense, net 65 62
Other non-operating expenses, net - 1
Minority interest 41 24
------------- -------------
Income before income taxes $ 327 $ 296
============= =============
36 Weeks Ended
---------------------------
September 8, September 9,
2007 2006
------------- -------------
Net Revenues
- -----------------------------------------
U.S. & Canada $7,294 $7,017
Europe 1,327 1,088
Mexico 934 860
------------- -------------
Total net revenues $9,555 $8,965
============= =============
Operating Income
- -----------------------------------------
U.S. & Canada $ 745 $ 697
Europe 99 61
Mexico 47 61
------------- -------------
Total operating income 891 819
Interest expense, net 199 186
Other non-operating (income) expenses, net (2) 11
Minority interest 72 48
------------- -------------
Income before income taxes $ 622 $ 574
============= =============
CONTACT: The Pepsi Bottling Group, Inc.
Mary Winn Settino, 914-767-7216
Investor and Public Relations
msettino@pepsi.com