PepsiAmericas Reports Double-Digit Growth in Net Income for the Second Quarter and First Half of 2004

Business Wire, July 28, 2004

MINNEAPOLIS -- PepsiAmericas, Inc. (NYSE:PAS) today announced reported second quarter 2004 net income growth of 16 percent and diluted earnings per share (EPS) growth of 16.2 percent. Net income was $61.7 million, or EPS of $0.43, which includes an after tax gain of $3.3 million from the sale of land and an after tax charge of $1.0 million in Central Europe, this compares to net income of $53.2 million, or EPS of $0.37, in the second quarter of 2003, For the first half of 2004, net income grew 41.5 percent to $82.2 million and EPS grew 42.5 percent to $0.57 compared with the first half of 2003.

Second Quarter Highlights

--Worldwide operating income grew approximately 6.6 percent to $111.0 million driven by a strong performance in our U.S. operations.

--Net sales growth of 4.5 percent to $909.7 million benefited from an 8.1 percent increase in worldwide average net selling price.

--U.S. volume grew 1.8 percent also contributing to the top-line results, while worldwide volume declined 4.4 percent reflecting softness in our international operations.

"Our performance in the second quarter of 2004 demonstrates the continued overall strength of our business," said Chairman and Chief Executive Officer Robert C. Pohlad. "Our strong domestic volume and pricing results were able to offset the volatility in our Central European operations. We anticipated volume softness in Central Europe in light of EU accession in May, yet we have continued to maintain pricing strength."

On a worldwide basis, the second quarter gross profit increased 8.5 percent to $391.1 million. U.S. operations gross profit grew 10.4 percent and drove the overall improvement. Worldwide cost of goods sold increased by 1.6 percent. Worldwide selling, delivery and administrative expenses increased by 9.2 percent.

Second Quarter U.S. Operations

Reflecting the strength in volume and continued focus on pricing, U.S. operating income improved 7.7 percent to $107.1 million versus $99.4 million in the second quarter of 2003.

Net sales increased 6.9 percent to $774.7 million compared to a year earlier. Improvement in both average net-selling price, up 4.2 percent, and volume, up 1.8 percent, contributed to the net sales growth. Approximately three quarters of the increase in net selling price was attributed to rate and one quarter to mix. The increase in volume was driven by modest growth in the core trademarks, strong double-digit growth in the non-carbonated category and strength in the diet category. An increase in Aquafina volume and the continued success of Tropicana flavored juice drinks introduced in February 2004 contributed to non-carbonated growth. Strong marketing and solid improvement in the on-premise channel drove mid-single digit growth in the single serve category.

Domestic cost of goods sold increased 4.4 percent or approximately 2.7 percent per unit. Selling, delivery and administrative costs trended higher in the U.S. growing 11.7 percent in the second quarter of 2004 led by higher compensation and benefit expenses, as well as higher insurance costs. In addition, we experienced higher promotional expense and incremental costs associated with our new telephone sales center, both of which contributed to our top-line growth. Selling, delivery and administrative costs as a percentage of net sales increased to 29.9 percent from 28.6 percent year-over-year.

Second Quarter International Operations

Operating income in the combined international operations declined due to soft market conditions in the Central Europe operations. International operating income was $3.9 million versus $4.7 million in the second quarter of 2003. Net sales decreased 7.8 percent to $135.0 million. Favorable pricing only partially offset the 22.6 percent decline in volume.

In the second quarter, our Central European operations experienced adverse economic impact from the accession of our markets into the European Union, as well as cooler weather conditions and comparisons to strong promotional activity in the second quarter of 2003. With these soft conditions, operating income was $2.8 million compared to operating income of $5.1 million in 2003, due, in part, to higher special charges of $1.3 million. Net sales decreased 14.7 percent to $84.2 million as a result of volume weakness. However, the 28.1 percent volume decline in our Central European operations was partially offset by a 16.6 percent increase in the average net selling price. Cost of goods sold was lower by 18.8 percent to $46.1 million as Central Europe's cost of goods sold per unit increased 12.3 percent compared to the same period in 2003 due to higher raw material costs. Benefiting from continued cost management programs, selling, delivery and administrative costs decreased 7.7 percent to $33.7 million. The impact of foreign exchange did not significantly impact Central Europe's operating results. However, it did benefit the year-over-year comparisons for sales and adversely impacted cost of goods sold and selling, delivery and administrative expenses.