PepsiAmericas Reports Double Digit Revenue and Operating Income Growth and Reaffirms Full Year Outlook

Business Wire, Oct 26, 2005

MINNEAPOLIS -- PepsiAmericas, Inc. (NYSE:PAS) today reported third quarter 2005 net income of $63.7 million and diluted earnings per share (EPS) of $0.47. These results include a $0.01 per share benefit related to additional high fructose corn syrup litigation settlement proceeds received in the third quarter. The reported results compare to net income of $64.3 million in the third quarter of 2004, or EPS of $0.46, which included a $0.04 per share benefit from various income tax settlements. For the first nine months of 2005, the company reported net income of $157.1 million and EPS of $1.14. This compares to net income of $146.5 million and EPS of $1.03 for the same period in 2004.

--Reported worldwide revenue increased 11.3 percent, with the newly acquired Central Investment Corporation (CIC) territories contributing approximately 7 percentage points of the growth.

--Worldwide volume improved 6.7 percent in the quarter, including the CIC territories. On a constant territory basis, PepsiAmericas delivered worldwide volume growth of 1 percent in the third quarter. U.S. volume grew 0.4 percent on a constant territory basis, while international delivered volume growth of 3 percent.

--Worldwide average net selling price increased 3.6 percent. In the U.S., net pricing increased 3.2 percent, with rate and mix contributing evenly.

--Reported worldwide operating income increased 13.3 percent in the third quarter. The CIC territories contributed over 8 percentage points of the worldwide operating income growth.

"We are very pleased with our third quarter performance as we continued to deliver consistent revenue growth," said Chairman and Chief Executive Officer Robert C. Pohlad. "Our U.S. business was the primary driver of our operating results in the quarter, fueled by strong execution in our noncarbonated portfolio, balanced pricing and the meaningful contribution from CIC. Our noncarbonated drink category grew to almost 16 percent of our overall volume mix in the U.S. CIC has performed even better than we expected this year, as we accelerate the integration and rationalization of procurement, production, and back office activities."

In the quarter, net sales grew 11.3 percent to $982.9 million driven by worldwide volume growth and favorable pricing in the U.S. Cost of goods sold per unit was up 3.8 percent. On a worldwide basis, gross profit increased 9.6 percent to $413.1 million, with foreign currency translation contributing 1 percentage point. Selling, delivery and administrative expenses increased 9.1 percent. CIC contributed approximately 7 percentage points of the increase in gross profit and selling, delivery and administrative expenses. Reported worldwide operating income increased to $121.3 million compared to $107.1 million in the third quarter of 2004.

Third Quarter U.S. Operations Highlights

U.S. volume grew 0.4 percent on a constant territory basis. Non-carbonated brands were up over 16 percent, driven by double digit growth in Aquafina, Lipton Tea, and Frappuccino. The company's diet portfolio continued to benefit from innovation with 4 percent growth in the third quarter, helping to mitigate the impact of regular carbonated soft drink volume declines. Single serve volume, which accounts for approximately 23 percent of the company's bottle and can volume, was up 3 percent. Take home volume was essentially flat with the continued migration from cans to multi-serve polyethylene terephthalate (PET) packages.

Net sales in the U.S. grew 11.9 percent to $822.8 million in the third quarter of 2005, with average net selling price per unit up 3.2 percent. CIC contributed approximately 8 percentage points of the U.S. top line growth. PepsiAmericas achieved balanced net pricing between rate and mix in the U.S., consistent with the previous quarter.

Domestic cost of goods sold increased 12.6 percent to $467.1 million, with CIC representing approximately 8 percentage points of the increase. Cost of goods sold per unit in the U.S. was 3.3 percent higher than the prior year quarter, reflecting higher raw material costs. Gross profit increased 11 percent over the third quarter of 2004 to $355.7 million.

Selling, delivery and administrative expenses increased 10.5 percent in the U.S. to $246 million, with CIC contributing approximately 8 percentage points of the increase. The remaining selling, delivery, and administrative cost increase can be mainly attributed to employee-related benefit costs.

U.S. operating income in the third quarter increased 14 percent to $111.5 million, which included the $1.8 million pre-tax fructose settlement gain offset by Hurricane Katrina related losses of approximately $1.2 million.

Third Quarter International Operations Highlights

In Central Europe, volume grew 4.3 percent in the third quarter. Poland delivered double digit volume growth, while volume declined in Hungary due to the continued competitive marketplace. Net sales in Central Europe increased 9.8 percent to $99.6 million in the third quarter, aided by the expansion of snack and beer distribution. Average net pricing increased 2.5 percent driven primarily by foreign currency translation. Cost of goods sold in Central Europe increased 17.4 percent to $58.6 million due, in part, to snack and beer distribution. The sequential increase in cost of goods sold per unit slowed from previous quarters to 6.8 percent as anticipated, as the company began to lap the higher sugar costs related to the EU accession. Gross profit of $41 million in the quarter was up 0.5 percent compared to the prior year. Selling, delivery and administrative expenses of $33.2 million in the third quarter remained relatively flat to the previous year's third quarter, as cost savings from productivity initiatives continued.