Pepsi Reports First Quarter Net Income
The Pepsi Bottling Group reported first quarter 2005 net income of $39 million, or diluted earnings per share (EPS) of $0.15.
This compares to reported net income in first quarter 2004 of $50 million, or $0.19 per diluted share.
Worldwide physical case volume was flat year-over-year on a constant territory basis as the Company lapped very strong volume growth in the first quarter of 2004. In the U.S., PBG’s volume was down one percent for the quarter, while the Company’s territories in Europe generated three-percent volume growth. Volume was flat in PBG’s Mexican business.
PBG reported strong net revenue per case performance in the U.S., up four percent for the quarter. This growth reflects both rate increases and mix improvement. Worldwide, net revenue per case grew three percent.
“We’re pleased with our performance in the first quarter, which positions us well to deliver on our commitments for the full year,” said John T. Cahill, Chairman and Chief Executive Officer of PBG. “We expected soft volume in the U.S. this past quarter as we lapped last year’s strong innovation in the form of Tropicana juice drinks and Pepsi Vanilla. Our non-carbonated portfolio, however, continued to grow with Aquafina delivering a high single-digit increase. The U.S. pricing environment was favorable, and the rate increases we implemented in the fourth quarter of 2004 have held in the marketplace. As we enter the second quarter, we have terrific product and package innovation planned, including the introduction of Pepsi Lime and Tropicana Twister as well as a new Fridgemate of 12-ounce plastic bottles for Aquafina and soft drinks. This innovation will be supported by a great line- up of in-store promotions, all designed to drive consumer excitement as we enter the summer-selling season.”
Cahill continued, “Our European businesses delivered solid revenue and volume results in the first quarter – which comprises only the months of January and February for our Europe and Mexico territories – with Turkey and Russia leading the way. In Turkey, we were able to capture our share of the overall category growth while, in Russia, our non-carbonated products fueled the volume increase. In Mexico, we experienced softer volume, primarily driven by our results in the metro Mexico City region. Recently, we’ve seen improvement in the pricing environment in several territories and the productivity initiatives we executed last year have begun to yield measurable results. As in the U.S., we have a solid innovation and promotion calendar planned for the second quarter, which should give a lift to our volume in Mexico.”
PBG’s physical case volume in the U.S. declined one percent in the first quarter on a constant territory basis. (Constant territory calculations assume all significant acquisitions made in 2004 were made at the beginning of 2004 and exclude all significant acquisitions made in 2005.) Cold drink volume grew one percent, but the take-home business was down one percent. Volume trends in Canada were similar to those in the U.S., with cold drink in positive territory. In Mexico, physical case volume was essentially flat for the quarter, with carbonated soft drinks (CSDs) and bottled water volume each down four percent and jug water up seven percent. PBG’s territories in Europe delivered volume growth of three percent. In Turkey, volume growth was in solid double-digit territory with brand Pepsi up more than 30 percent year-over-year.
The Company’s reported net revenue per case growth in the U.S. was four percent in the first quarter. Rate increases contributed about two-thirds of this growth while mix added one-third. PBG also generated solid net revenue per case growth in Canada, where the Company’s pricing actions have held in the marketplace.
Reported operating income in the first quarter was down 12 percent on a worldwide basis. These results were expected due to the lapping of a particularly strong first quarter in 2004 and ongoing raw materials cost pressures. Cost of goods sold per case was up six percent in the first quarter, with foreign currency translations accounting for about one point of that growth.
During the first quarter, PBG repurchased 4.3 million shares of common stock. Since the inception of the Company’s share repurchase program in October 1999, 88 million shares have been repurchased.
The Company reaffirmed its full-year operational guidance and modified slightly its profit and earnings guidance. In fiscal 2005, PBG now expects to achieve pro forma diluted EPS of $1.78 to $1.84, which excludes the impact of the 53rd week. (See Editor’s Note.) Worldwide constant territory volume is expected to grow two to three percent for the year and pro forma operating income will likely be up one to three percent. These projections also exclude the impact of the 53rd week. PBG expects net cash provided by operations less capital expenditures to be approximately $500 million, with capital expenditures in the range of $675 to $725 million. This guidance does not reflect the impact to earnings from the expensing of stock options, which PBG is required to adopt by the fourth quarter of 2005.
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