This summary is based on the third quarter fiscal 2007 earnings call conducted by PepsiCo Inc. (PEP: chart) on October 11, 2007.
Management:
Chairman, CEO: Indra Nooyi
IR: Jane Nielsen
CEO, PepsiCo North America: John Compton
Vice Chairman, CEO PepsiCo International: Mike White
CFO: Richard Goodman
Key Investors Issues
- EPS were $1.06 a share compared to 89 cents a share last year.
- Net income was $1.74 billion, up from the year-ago $1.49 billion.
- Revenue rose to $10.17 billion from $9.13 billion a year earlier.
Second Quarter Highlights
The company had a non-cash tax benefit totaling 7 cents per share, or $115 million, related to the settlement of a tax audit in one of international businesses.
Revenue was up 11%, division operating profits up 10%, and core earnings per share increasing 11%. Line of business operating margin was lower than last year''s on a reported basis. However, excluding the compression from M&A activity, PepsiCo''s overall LOB margin improved.
The company closed the Sandora acquisition.
- The company announced the acquisition of the Lucky snacks business in Brazil, and it has built upon successful partnerships with Unilever and Starbucks by expanding international markets.
- Business results and growth platforms are enhanced by the progress the company is making in environmental sustainability agenda, reducing water and energy consumption, increasing recyclable materials in packaging, and leading innovative carbon footprint labeling.
North American revenue increased almost 5%, and profit growth showed sequential improvement, achieving 7% growth.
- Frito-Lay North America revenue grew 6% through a combination of solid volume growth and price mix benefits of almost 4 points.
- Frito-Lay drove manufacturing productivity, which helped offset inflation.
- In total, Frito-Lay expanded operating profit margins by 25 basis points and realized 7% growth in profits.
- Frito''s wins extended to the marketplace, growing both savory dollar and volume share. Volume growth drivers were balanced between core salty brands and Quaker snacks, with high single-digit growth in Doritos and double-digit growth in dips, multi-packs, SunChips, Stacy''s and Quakes Rice Cakes.
- One area that continued to be soft was brand Lay''s where volume was down mid single-digits, primarily as a result of the weight-up/price-up strategy implementing in the fourth quarter of last year.
- The company has recently taken a number of steps to address this issue. First, it has changed the packaging to a new global Lay''s design.
- It has been able to expand kettle chip offerings now that capacity is on stream.
- Frito-Lay is making progress in reducing usage of water and fuel, down over 30% and 20% respectively since 1999.
- The Jonesboro, Arkansas plant recently earned the EPA''s Performance Track Program distinction for its energy conservation and waste water reductions.
Beverage business volume was down 1%.
- Revenues were up 3% and profit grew 7%. The months of June and July were unseasonably cool and rainy and had an impact across all beverages, particularly Gatorade.
- Water portfolio grew high single-digits led by double-digit growth in Propel and SoBe Lifewater.
Gatorade did decline mid single-digits.
An effort to restore high single-digit growth to the Gatorade trademark is the launch of G2. G2 is a low calorie, electrolytic beverage with just 25 calories per eight-ounce serving, half the calories of Gatorade, but with all the electrolytes. It expands the Gatorade product line to now meet the hydration needs of athletes on a 24/7 basis.
Propel is introducing a new line extension, Propel Invigorating water. This fitness water from Propel is mildly caffeinated and lightly flavored with only 20 calories per 8-ounce serving.
The company is relaunching SoBe Lifewater. SoBe Lifewater is being reformulated with sucrose, antioxidants, vitamins and natural herbs.
