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PepsiAmericas reports first quarter 2009 results
PepsiAmericas Inc has reported net income of $21.7m and diluted earnings per share (EPS) of $0.17 in the first quarter of 2009. Net income in the first quarter of 2009 was negatively impacted by mark to market losses and special charges, which decreased EPS by $0.03, resulting in adjusted EPS of $0.20.
Results were also negatively impacted by foreign currency movements, which reduced net income by $15.3m and EPS by $0.12. These results compare to first quarter reported net income in 2008 of $24.7m, or $0.19 per share.
“PepsiAmericas is off to a strong start in 2009, illustrating how our geographic diversification continues to work for us,” said chairman and CEO, Robert C Pohlad. “Strong pricing across all markets, growth in carbonated soft drinks in the US, and solid execution of our productivity and cost reduction plans worked to offset significant foreign currency headwinds and drove first-quarter earnings.
“In addition, we expanded our global product portfolio with new products and innovation and invested in growth capacity in Europe, strengthening our position in the marketplace. Productivity and cost initiatives are on track to deliver the $40m in cost savings for the year. And we continued our track record of returning cash to shareholders, with share repurchases and a 4% dividend increase in the quarter.
“PepsiAmericas’ first-quarter performance – enabled by our diverse geographic mix, capable organisation, and powerful brands – strongly positions us to deliver our 2009 full-year outlook at the high end of the range, despite the challenging global economic environment.”
First quarter 2009 worldwide financial highlights
- Revenue of $1.1bn decreased 4%, with currency neutral revenue up 2.5%, led by strong pricing across all markets.
- Volume declined 5.2%, reflecting Central and Eastern Europe (CEE) volume declines of 12.2% as the business cycled double-digit volume growth in prior year quarter. US volume trends improved to down 1.2%.
- Cost of goods sold per unit was below prior year quarter by 1.6%, primarily driven by the impact of foreign currency. On a currency neutral basis, cost of goods sold per unit increased 3.2% due to higher raw material costs. Cost of goods sold per unit excludes the impact of the mark to market losses.
- Selling, delivery and administrative expenses (SD&A) declined 1%, up 4% on a currency neutral basis and in line with expectations.
- Operating income decreased 9% to $64.2m, including non-comparable items of $5.8m. Comparable operating income decreased 1%, with pricing, productivity and cost control offsetting the negative impact from foreign currency.
- The impact of currency decreased revenue six percentage points and decreased cost of goods sold and SD&A by almost five percentage points each. The net effect was a 28 percentage point reduction to operating profits.
First quarter US operations highlights
Net sales in the US increased 6% to $826.6m in the first quarter driven by strong execution of pricing and innovation initiatives. The volume decline of 1.2% included a two percentage point decrease related to the quarterly shift in the Easter holiday. Despite the holiday impact, carbonated soft drink volume grew modestly, led by Mountain Dew and the addition of Crush. Non-carbonated soft drink volume decreased 7%, an improvement from full year 2008 trends. Single-serve volume trends improved to down 1%, led by growth across all retail channels, while foodservice continued to be soft.
Net pricing grew 6%, primarily reflecting rate increases to cover higher raw material costs. Net pricing also benefited from the holiday shift and favourable package mix. Cost of goods sold per unit increased 4.9%, excluding the impact of the mark to market losses. Gross profit increased 6% in the quarter to $335.7m.
SD&A increased 4% to $269.3m driven by higher compensation and healthcare costs, as well as $1.6m of mark to market losses on derivative instruments. First-quarter operating income was $66.4m, compared to $58.2m in the prior year quarter, which included non-comparable items of $5.6m and $0.5m, respectively. Comparable operating income increased 23%.
First quarter international operations highlights
CEE net sales were $182.8m in the first quarter, down 31% from the prior year, primarily due to a 25 percentage point negative impact from foreign currency. Currency neutral net pricing grew 7.4%. Volumes declined 12.2%, reflecting difficult economic conditions as well as the lapping of double-digit volume growth in the prior year quarter. Favourable volume trends continued in Poland during the first quarter.
Cost of goods sold per unit decreased 22.4%, reflecting a 19 percentage point decrease from foreign currency with the remainder of the decrease driven by favourable mix and system efficiencies. Gross profit declined 29% to $66.3m for the quarter. SD&A of $67.0m was down 15% primarily due to foreign currency offset mainly by the timing of advertising costs. CEE’s operating loss was $0.7m, as pricing and cost management offset, in part, the impact of volume declines and $19.8m in foreign currency headwinds. This compared to operating income of $14.1m in the prior year quarter.
Caribbean net sales were $48.1m in the first quarter, down 12% from the prior year quarter due to a 14% volume decline and the impact of foreign currency. Currency neutral pricing increased 5.7% to cover increased cost of goods sold per unit, up 4.8% on a currency neutral basis. Gross profit declined 10% to $11.4m. SD&A decreased 14% to $12.7m as the benefits of the prior year’s restructuring initiative were realised. The Caribbean reported an operating loss of $1.5m, compared to an operating loss of $2m in the prior year quarter.
2009 outlook
The company expects to be at the high end of its full-year 2009-adjusted EPS outlook of $1.83 to $1.90. This outlook includes the negative impact from foreign currency based on recent exchange rates. The company expects currency neutral revenue to grow in the 4% to 5% range. Adjusted operating profits are now expected to decline in the 4% to 5% range, including the impact of currency. This reflects an improved US operating profit outlook, offset in part by additional currency headwinds. These 2009 forecasts are based on a 52-week comparable basis.
The company expects to generate adjusted operating cash flow of approximately $180m to $200m, with capital spending of approximately $275m.
Source: PepsiAmericas
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