This summary is based on the fourth quarter fiscal 2006 earnings call conducted by PepsiCo, Inc. (PEP: chart) on February 8, 2007.

Key Investors Issues

- Earnings of $1.06 per share grew 63% versus 65 cents per share reported in the fourth quarter of 2005.
- Net revenue increased 3%.
- PepsiCo International net revenue grew 16% driven by the broad-based volume gains and effective net pricing.

Fourth Quarter Highlights

Net revenue increased 3%.

Excluding the impact of an extra reporting week in the prior year, net revenue increased over 7%.

Earnings of $1.06 per share grew 63% versus 65 cents per share reported in the fourth quarter of 2005.

Excluding the impacts of the extra reporting week in 2005 and previously announced tax items and restructuring actions in 2006 and 2005, the company generated earnings of 72 cents per share in 2006, an increase of 11%.

The company recorded a pretax charge of $83 million in the fourth quarter of 2005 related to cost-reduction actions, principally headcount reductions.

- Of that amount, approximately $70 million was reported within Division operating results with the balance reported in corporate unallocated costs.
- The company recorded a pre-tax charge of $67 million in the fourth quarter of 2006 related to the previously announced action to consolidate the Frito-Lay North America manufacturing network from 34 sites to 32 sites.

Frito-Lay North America had strong revenue and profit performance.

- Frito-Lay North America net revenue increased 7%, driven by broad-based volume growth and effective net pricing. Net revenue growth was led by gains in trademark Doritos, Sunchips, Tostitos, Lay''s and Cheetos. Operating profit grew 8% benefiting principally from the net revenue gains.
- Non-carbonated beverages drove PepsiCo Beverages North America volume growth.
- Bottler case sales increased, driven by mid- single-digit growth in non-carbonated beverages and substantially offset by a low-single-digit decline in carbonated soft drinks.

- Within non-carbonated beverages, waters (including enhanced waters), teas and energy drinks increased strong double digits, offset somewhat by declines in Gatorade and Tropicana Pure Premium. Declines in Gatorade were largely attributable to difficult comparisons to the prior-year quarter when volumes grew more than 30%, cooler weather in the early part of the quarter, and higher trade inventories at the end of the third quarter as compared to the prior year when retail inventories were low due to capacity shortages. Tropicana Pure Premium volumes were largely impacted by the effect of increased retail prices on consumer demand.
- Within CSDs, low-single-digit declines in trademarks Pepsi and Mountain Dew were partially offset by high-single-digit growth in trademark Sierra Mist. Regular CSDs in total declined low-single-digits, offset in part by a low-single digit increase in diet CSDs.
- Increased trade support contributed to the decline in revenue. Operating profit was pressured by increased Gatorade supply chain costs associated with the start up of new manufacturing capacity. Tropicana Pure Premium price increases offset increased orange juice raw material costs, and the impact of lower advertising and marketing expense was partly offset by higher trade spending.

PepsiCo International posted strong gains in both snacks and beverages.

- Snack volume growth of 9% was led by mid-single-digit growth at Gamesa in Mexico and strong double-digit growth in Russia, Turkey and Egypt. Beverage volume growth of 7% was led by double-digit gains in the Middle East and Argentina, and high-single-digit growth in China and Brazil. Carbonated soft drinks grew at a mid-single-digit rate and the non-carbonated beverages growth rate was in the high teens.

- PepsiCo International net revenue grew 16% driven by the broad-based volume gains and effective net pricing. Foreign currency contributed 2 percentage points of growth and the net impact of acquisitions and divestitures contributed 3 percentage points of growth.
- Operating profit grew 26% driven by net revenue gains, and offset partially by higher energy and raw material costs. Foreign currency contributed 3 percentage points of growth and the net impact of acquisitions and divestitures reduced growth by one percentage point.
- Quaker Foods North America profits grew 5%. Volume declined, as gains in ready-to-eat cereals and oatmeal were more than offset by single-digit declines in side dishes and Aunt Jemima syrup and mix. Net revenue declined in line with volume. Operating profit increased 5% as the impact of the net revenue decline and higher input costs were more than offset by lower selling, general and administrative costs.

Corporate unallocated expenses declined by $39 million, driven by the absence in the current year of a $12 million charge related to the 2005 restructuring action, and the net favorable impact of certain other corporate items.

- Bottling equity income increased by $4 million and included a gain of $21 million related to a favorable tax audit settlement at the Pepsi Bottling Group in the current year and an $8 million benefit from the extra reporting week in the prior year. Excluding these items, bottling equity income declined by $8 million in the quarter. Gains on sales of shares in PBG were comparable to the fourth quarter of 2005.
- The company reported a net tax benefit of $144 million, which included non-cash benefits of approximately $600 million, substantially all of which related to the Internal Revenue Service''s examination of the company''s consolidated income tax returns for the years 1998 through 2002.

Fiscal 2006 Highlights

- Net revenue was up 8% and, excluding the impact of the extra reporting week in 2005, net revenue increased more than 9%.
- Operating margins improved compared to the prior year as pricing and lower corporate unallocated costs more than offset the impact of higher input costs. The impact of lower advertising and marketing expense was offset by higher trade spending.