The Pepsi Bottling Group Reports Solid Earnings Growth in Third Quarter; Volume Growth Achieved in All Key Markets

Business Wire, Sept 28, 2004

SOMERS, N.Y. -- The Pepsi Bottling Group, Inc. (NYSE:PBG) today reported third quarter 2004 net income of $191 million, or diluted earnings per share (EPS) of $0.73, which includes a $0.02 gain from the settlement of certain international tax audits. These results compare to reported third quarter 2003 net income of $183 million, or EPS of $0.67. Reported year-to-date net income was $383 million, or EPS of $1.44, which includes the $0.02 tax gain. These results compare to reported year-to-date 2003 net income of $353 million, or $1.26 per share, before accounting for the cumulative effect of the adoption of a new accounting principle, which reduced EPS by $0.02.

--Worldwide physical case volume grew two percent on a constant territory basis in the third quarter. PBG's U.S. business delivered one-percent volume growth and the Company's European business generated a five-percent increase in volume. In Mexico, strong marketplace execution led to a three-percent improvement in physical case volume.

--In the U.S., PBG delivered another consecutive quarter of net revenue per case growth, up three percent for the third quarter. Worldwide, net revenue per case improved two percent.

--Given three quarters of strong earnings performance, PBG adjusted its full-year earnings expectations to a range of $1.71 to $1.74, excluding the previously mentioned tax gain.

"Outstanding execution in the marketplace drove our results in the third quarter," said John T. Cahill, Chairman and Chief Executive Officer of PBG. "In the U.S., we were faced with a soft retail environment this past quarter, as well as a challenging year-over-year volume lap. Our field organization rose to the challenge and delivered one-percent volume improvement, with growth in both the cold drink and take home channels of our business. Brand Mountain Dew performance was strong, benefiting from the introduction of the latest line extension, Mountain Dew Pitch Black, near the end of the quarter. Tropicana juice drinks continued to perform well, achieving three points of share since the introduction earlier this year. Our net revenue per case results were very good, growing for the 20th consecutive quarter excluding the impact of last year's accounting change."

Cahill continued, "We were very pleased with our positive volume results in Mexico. This volume improvement was consistent across our portfolio with growth generated from our carbonated soft drinks, bottled water and jug water. These results reflect the ongoing progress we're making on a number of fronts. While there remains a lot of work ahead of us in Mexico, we believe we're on the right track to sustained improvement."

On a constant territory basis, physical case volume worldwide grew two percent in the third quarter. (Constant territory calculations assume all significant acquisitions made in 2003 were made at the beginning of 2003 and exclude all significant acquisitions made in 2004.) In the U.S., volume in PBG's cold drink business grew one percent, while its take home volume was positive. PBG's business in Canada also increased its volume one percent in the quarter. The Company's businesses in Europe collectively generated five percent growth in volume, with its Russian and Turkey territories each delivering double-digit volume improvement. Physical case volume of carbonated soft drinks in Mexico grew three percent for the quarter. Sales of bottled water and jug water in Mexico also improved, up 18 and two percent respectively.

Worldwide operating income was flat in the third quarter. This was due primarily to rising raw materials costs and higher benefit and compensation expenses. Year-to-date, worldwide operating income grew four percent.

During the third quarter of 2004, PBG repurchased 6.8 million shares of common stock. Since the inception of the Company's share repurchase program in October 1999, more than 80 million shares have been repurchased.

The Company revised upward the lower end of the range of its estimate for full year 2004 earnings per share. The current forecast is for EPS of $1.71 to $1.74 excluding the previously mentioned tax gain. PBG reiterated its expectations for worldwide physical case volume growth for the full year 2004 of two to three percent with net revenue per case improvement of two to three percent. The Company's operating income outlook for 2004 remains unchanged, with growth expected to come in at the mid-single digit range. PBG expects cash from operations less capital expenditures to be approximately $530 million, a 20 percent increase over 2003 results. The Company expects capital expenditures for the year to be in the range of $675 to $700 million.

The Pepsi Bottling Group, Inc. (www.pbg.com) is the world's largest manufacturer, seller and distributor of Pepsi-Cola beverages with operations in the U.S., Canada, Greece, Mexico, Russia, Spain and Turkey.

Listen in live to PBG's third quarter 2004 earnings discussion with financial analysts on Sept. 28th at 11 a.m. (EDT) at http://www.pbg.com.