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During the third quarter of 2006, the company completed the acquisition of bottling operations in Romania and distribution rights in Moldova. These geographies are referred to as the acquisition territories in this release.
* Reported worldwide revenue increased 13.2 percent to $960.2 million, with almost 6 percentage points contributed by the acquisition territories and the remainder driven by volume and pricing gains in both the U.S. and Central Europe.
* Worldwide volume improved by 10.6 percent over the same period last year with constant territory volume up 1.9 percent. U.S. volume increased 0.6 percent with existing markets in Central Europe growing 14 percent, partially offset by volume declines of 6.4 percent in the Caribbean.
* Reported worldwide average net selling price increased 2.5 percent with constant territory pricing improvements of 4.6 percent.
* Gross profit grew 10.5 percent to $384.2 million, with 6 percentage points of growth from the acquisition territories and the remainder driven by organic growth as pricing offset the higher cost of goods sold. Reported worldwide cost of goods sold per unit increased 4.1 percent. On a constant territory basis, worldwide cost of goods sold per unit increased 6.3 percent, driven by a 6.1 percent higher cost of goods sold per unit in the U.S.
* Reported operating income increased 30 percent to $59.4 million, including acquisition territories. This compared to $45.7 million in the first quarter of 2006.
“Across our markets, our organization delivered the strong results we expected,” said Robert C. Pohlad, Chairman and Chief Executive Officer of PepsiAmericas. “Our overall operating results were driven by top-line strength in both the U.S. and Central Europe. In the U.S., revenues grew 5 percent, reflecting net pricing gains of 3.9 percent that offset our cost of goods sold increases. In addition, we continued to show consistent growth in our non-carbonated beverages, which accounted for over 19 percent of the U.S. volume mix in the quarter.
“Revenues outside the U.S. totaled over 20 percent of our worldwide net revenues,” continued Mr. Pohlad, “Our Central Europe business stands out, delivering strong revenue growth, up 38 percent on a constant territory basis. This growth continues to be broad-based, with volume and profit improvements in all markets, and growth in both carbonated soft drinks and our non-carbonated beverages. On top of the strength of our existing markets, our Romania business continues its impressive track record of double digit revenue and operating profit growth.”
First Quarter U.S. Operations Highlights
Volume was up 0.6 percent in the quarter compared to prior year, as growth in the company’s non-carbonated portfolio offset carbonated soft drink declines of 3 percent. The company continued to build scale in its non-carbonated beverage business, growing the category 20 percent in the quarter. Aquafina grew 16 percent, while the balance of the non-carbonated portfolio showed consistent growth, up 24 percent, led by Lipton Iced Tea.
Net sales in the U.S. grew 5 percent to $764.9 million in the first quarter, driven by net pricing growth of 3.9 percent. Net pricing improvements primarily reflected rate increases as package mix was neutral, an improvement from past quarters. While the company’s single serve business was essentially flat in the quarter, take home business grew and the mix of volume within these segments improved. Domestic cost of goods sold per unit increased 6.1 percent, reflecting both increased ingredient costs and higher non-carbonated mix related costs. Gross profit increased 1.9 percent to $316.5 million, as pricing covered cost of goods sold increases.
Selling, delivery and administrative expenses increased 0.8 percent, to $254.9 million. This compares favorably to first quarter 2006 as a percentage of net sales, due primarily to a $3.5 million unrealized gain in the fair value of derivative contracts that will reverse during the balance of the year. The company entered into these contracts to manage the risks associated with fluctuations in diesel fuel costs. First quarter operating income was $60.4 million including special charges of $1.2 million, compared to $57.7 million in the prior year quarter.
First Quarter International Operations Highlights
Central Europe volume grew 81.1 percent, including acquisition territories, in the first quarter. Constant territory volume, up 14 percent, was broad-based as all markets contributed. Central Europe net sales were $143.0 million in the first quarter, up 109.1 percent, with approximately 70 percentage points of the increase coming from the acquisition territories. Existing markets generated top-line growth of 38 percent due to strong volume and pricing. Average net pricing increased 19.2 percent reflecting 7 percentage points from foreign currency translation and the remainder due to strong mix improvements and rate increases. Cost of goods sold per unit increased 12.5 percent with foreign currency translation accounting for 5 percentage points of the increase, and the remainder driven mainly by higher ingredient costs. Reported gross profit increased 127.3 percent to $55.0 million for the quarter with the acquisition territories driving 85 percentage points of the increase and constant territories growing over 42 percent. Selling, delivery and administrative expenses of $53.8 million were up 63 percent, and up 20 percent on a constant territory basis, reflecting unfavorable foreign currency translations and higher volume. The Central European business reported operating income of $1 million in the quarter, an improvement from the $11 million operating loss reported in the prior year first quarter which included a $2.2 million special charge. The acquisition territories and profit improvements in each of the existing markets contributed to the overall operating results in Central Europe.
The Caribbean business reported a volume decrease of 6.4 percent, driven mainly by the softer economic conditions in Puerto Rico. An average net selling price improvement of 6.8 percent helped offset volume declines and drive top-line growth of 1.2 percent to $52.3 million in the first quarter. Cost of goods sold per unit increased 1.7 percent and gross profit decreased 2.3 percent to $12.7 million in the quarter. Selling, delivery and administrative costs increased 5 percent, resulting in an operating loss of $2 million for the quarter, $1 million unfavorable to the prior year.