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PepsiCo Announces 15% EPS Increase

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PepsiCo reported a 15% increase in first-quarter earnings per share to $0.53, fueled by Division operating profit growth of more than 10%.

Net revenues increased 7%, with each of the Company’s operating Divisions posting solid top line growth.

Chairman and CEO Steve Reinemund said, “I am pleased with our performance for the first quarter. The strength of the portfolio continues to prove itself, with each operating Division performing well, giving me confidence in our outlook for the full year.”

Frito-Lay North America’s (FLNA) revenue growth was balanced across its portfolio. The Division’s four largest brands — Lay’s, Doritos, Tostitos and Cheetos — had combined revenue growth of almost 6%, roughly in line with total salty snack revenue growth. Revenues of the Division’s other macro snack products rose in high- single digits, reflecting strong performance from the Grandma’s and Gamesa branded cookie lines, continued strong sales of nuts and premium meat snacks, and double-digit growth in Quaker rice snacks.

Operating profit grew in line with revenue growth. Operating margins were hampered by increased fuel and energy costs in the quarter, which impacted the costs of freight, plant operations and route truck fuel.

PepsiCo Beverages North America (PBNA) Posted 1.5% Volume Growth, Lapping 5% Growth in 2004.

Volume grew 1.5% in the quarter, with the Division’s non-carbonated beverage portfolio increasing 8% and carbonated soft drinks (CSDs) declining 1%. The Division lapped one of its stronger volume growth quarters of 2004, when volumes were up 5%. Favorable Easter holiday timing contributed about 50 basis points to volume growth.

Non-carbonated beverage volume growth was fueled by double-digit growth in Gatorade, Aquafina and Propel fitness water. Tropicana chilled juice volume declined 2% in the quarter, reflecting the impact of increased pricing.

Within carbonated soft drinks, low single-digit volume growth in trademark Sierra Mist was more than offset by a low single-digit decline in trademark Pepsi. Trademark Mountain Dew volume was roughly flat to prior year. Diet CSDs continued to perform well, with volume growth in the mid-single digits.

Solid net revenue growth reflected increased pricing and favorable product mix, offset somewhat by a decline in concentrate shipments, which lagged bottler case sales growth. Operating profit grew 8%, lapping 20% in 2004. Operating profit growth reflected the revenue gains and the favorable resolution of prior year estimated marketing accruals, partly offset by higher energy and raw material costs. The marketing accrual adjustment contributed four points to PBNA’s operating profit growth and one point to total PepsiCo Division operating profit growth in the quarter.

PepsiCo International (PI) profits increased 20% as emerging markets continue strong growth.

Snacks volume growth of 4% was driven by single-digit growth at Gamesa and Sabritas in Mexico, double-digit growth in Egypt and Turkey, and strong double-digit growth in the four major emerging markets (India, China, Russia, and Brazil). Growth was offset somewhat by volume declines at Walker’s in the UK. The dissolution of the Company’s snack joint venture in South Korea and an acquisition in Romania had no net impact on the reported snack volume growth rate.

Beverage growth of 9% was driven by strong performance across the Middle East and double-digit growth in total for the major emerging markets, offset somewhat by a modest volume decline in Mexico. Carbonated soft drinks grew at a high single-digit rate, and non-carbonated beverage volume grew at a double- digit rate.

Net revenue grew 12%, driven by the broad-based volume gains and favorable pricing and mix. Foreign currency translation contributed 2 points of net revenue growth. Operating profit grew 20%, driven by revenue growth and 1 point of foreign exchange benefit. During the quarter, PepsiCo acquired the remaining 40.5% interest in Snack Ventures Europe from General Mills. The combined impact of acquisition activities in the quarter contributed one percentage point to PI operating profit growth.

Quaker Foods North America (QFNA) had exceptional top line AND bottom line results in the quarter.

Double-digit volume growth of Quaker oatmeal and Cap’n Crunch cereal and the impact of favorable mix drove 10% revenue growth in the quarter. Operating profit growth was driven by the strong sales growth, and the growth of higher margin products.

PBG share sales, share repurchases, and a reduced tax rate contrubted to EPS growth.

Earnings per share growth was bolstered by a $28 million pre-tax gain recognized on the sale of shares in The Pepsi Bottling Group, a 1% reduction in the number of weighted average shares outstanding, and a 50 basis point reduction in the Company’s effective tax rate.

2005 earnings guidance increased on favorable tax rate revision.

The Company expects earnings per share for 2005 of at least $2.56, excluding the impact of the 53rd week (see note under “Miscellaneous Disclosures”, below). Including the impact of the 53rd week, the Company expects earnings per share of at least $2.60. This guidance is an increase of $0.01 per share from the Company’s previous guidance, reflecting a favorable adjustment to the Company’s expected full-year tax rate. The Company expects the impact of the 53rd week on earnings per share to be $0.04-$0.05.

The Company is evaluating whether to repatriate undistributed international earnings in 2005 under the provisions of the American Jobs Creation Act. The Company believes that the maximum amount that can be repatriated under the Act is $7.5 billion. The Company’s earnings guidance does not include the impact on earnings that would result in the event the Company repatriates cash during the year.

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PepsiCo Announces 15% EPS Increase
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