This summary is based on the third quarter fiscal 2008 earnings call conducted by The Pepsi Bottling Group Inc. (PBG: chart) on September 30, 2008.

Management:

- President & CEO: Eric Foss
- Sr. VP & CFO: Alfred Drewes
- President PBG North America: Rob King
- VP IR & PR: Mary Winn Settino

Key Investors Issues

- Sales increased by 2% to $3.8 billion from $3.7 billion in the prior year.
- Earnings dropped 11% to $231 million or $1.06 a share.
- The firm repurchased about 3.5 million of its own shares.

Third Quarter Highlights

Earnings were down 11% to $231 million or $1.06 a share, from $260 million or $1.12 a share in the prior year as in the U.S. and Canada, physical case volume decreased 6%.

- The decrease was driven by macroeconomic factors which negatively impacted the liquid refreshment beverage category and the Company took steps to improve the profitability of its bottled water business in the take-home channel.
- Revenues increased 2% to $3.8 billion from $3.7 billion in the prior year following a 9% increase in net revenue per case, a 7% increase in gross profit per case and $50 million of cost productivity savings in the quarter.
- The impact of FOREX on operating profit was favorable adding about three points of growth to each line of the P&L through operating profit.

Near the end of the quarter the dollar strengthened and this resulted in a $5 million transactional FOREX expense which is reflected below the line in other non-operating income and expenses.

- The firm repurchased about 3.5 million of its own shares and returned roughly $600 million in cash to shareholders year-to-date.
- In the US category weakness has been pronounced due to the macroeconomic conditions facing both the country and consumers and year-to-date in measured channels the category is down 2%.
- Non-carbs are down 3% this year while the water segment is up 2%; both significantly below category forecasts for growth in the high single-digits.

The firm’s CSD portfolio is down 4% year-to-date and the non-carb volume is down 2% which is slightly better then the category and the biggest discrepancy is in water, where volume is down 6%.

- A large portion of this reflects a conscious decision not to chase aggressively low price points for the unflavored take-home water business that produces low margin and deteriorating profits.
- In Europe, the slowdown continued due to a variety of macroeconomic factors ranging from near-term economic volatility and food inflation in Russia, to fall out from the real estate situation in Spain.

Similarly the macroeconomic environment in Mexico has been slowing as cash remittances from the US are down for the first time in over a decade and consumer confidence has declined every quarter this year.

- In light of these global category pressures, the firm continues to focus on controlling what it can control; i.e the rate and margin improvements combined with cost and productivity gains.
- It continues to drive profit growth in Europe driven again by Russia and Turkey, with operating profit in Europe growing 4% and has increased 28% year-to-date.
- In Mexico, profit was up over 30% as the firm has been able to enhance revenue and margin management capabilities and reduce operating costs.

Adapting to the marketplace challenges:

- Today’s environment requires companies to transform their cost structures, enhance their productivity, and excel at the point-of-sale.
- The firm is optimizing its manufacturing costs, light-weighting packaging, self-manufacturing PET Pep bottles, improving capacity utilization and taking other steps to maximize efficiencies across the entire production process.
- It is transforming the warehouse capabilities and this involves leveraging a range of innovative technologies that greatly improve everything from storage and retrieval to loading and shipping.

Pepsi is also maximizing its go-to-market effectiveness, making improvements in the way it manages delivery, merchandising and selling activities as well as continue to take a disciplined to G&A spending.

- The second element of the plan it is currently executing is to pursue growth opportunities, through strengthening and diversifying the brand portfolio by filling portfolio gaps, entering white space, and pursuing scale opportunities.
- PBG is committed to competing in every LRB segment that is growing and profitable with an end goal of being number one or a strong number two in each segment.
- The addition of Crush enhances its position in the fruit flavored CSD category And it has completed a deal with PepsiCo to add Lebedyansky to its portfolio in Russia.

Another component of the growth strategy is to re-conceptualize price and pack architecture.

- The firm is exploring new package solutions designed to deliver against three core objectives; improving consumer value, increasing volume and expanding margins.
- It recently announced plans to acquire Lane affiliated companies; the eighth largest bottler in Pepsi US network, which will extend the firm’s reach across territories in Arizona, New Mexico and Colorado.

Full Year Guidance: