PepsiCo, Inc. (PEP)
Q4 2008 Earnings Call Transcript
February 13, 2009 9:00 a.m. ET

Executives

Mike Nathenson – Senior Vice President of Investor Relations
Indra Nooyi – Chief Executive Officer
John Compton – Chief Executive Officer, PepsiCo Americas Foods
Mike White – Chief Executive Officer, PepsiCo International
Massimo D''Amore – Chief Executive Officer, PepsiCo Americas Beverages
Richard Goodman – Chief Financial Officer

Analysts

John Faucher - JPMorgan
Marc Greenberg - Deutsche Bank
Christine Farkas – Banc of America/Merrill Lynch
Kaumil Gajrawala - UBS
Lauren Torres - HSBC
Mark Swartzberg – Stifel Nicolaus & Co.
Judy Hong - Goldman Sachs

Presentation

Mike Nathenson

Thank you operator and good morning everyone. Thanks to all of you for joining us. Today''s webcast includes a slide presentation that can be accessed at our PepsiCo.com website.

Before we begin, please take note of our cautionary statement. This conference call includes forward-looking statements based on currently available information, operating plans and projections about future events and trends. Our actual results could differ materially from those predicted in such forward-looking statements, but we undertake no obligation to update any such statements, whether as a result of new information, future events or otherwise.

Please see our filings with the Securities and Exchange Commission, including our Annual Report on Form 10-K and subsequent reports on Form 10-Q and 8-K for a discussion of specific risks that may affect our performance. You should refer to the Investors Section of PepsiCo''s website at www.pepsico.com under the heading Financial News to find disclosures and reconciliations of non-GAAP financial measures that may be used by management when discussing PepsiCo''s financial results with investors and analysts.

Now for a couple of housekeeping items, during today''s call, all references to EPS growth and division operating profit growth are core and exclude net mark-to-market gains or losses on commodity positions included in corporate unallocated expenses, restructuring and impairment charges including the impact of our productivity for growth program and our share of PBG’s restructuring and impairment charges, and the impact of certain tax benefits in 2007.

With that I will turn the call over to Indra.

Indra Nooyi

Thank you Mike and good morning everyone. I’d like to open today’s call by saying that I am very proud of the way PepsiCo performed in 2008. Global snacks and global beverage volumes were both up 3% with international beverages up 10% and international snacks up 5.5%.

Revenue was up 10% to $43.3 billion, EPS for the year was up 9%, cash flow was a robust $7 billion, and we returned over $7 billion to shareholders in the form of dividends and share buybacks. And we achieved these very good results in spite of a very tough macroenvironment which is a great testament to the way in which our teams around the world responded real time to the challenges.

Timely actions on revenue management, a solid innovation calendar, and a continuing focus on cost discipline and productivity allowed us to maintain momentum with our consumers and deliver strong results for our shareholders. Looking across our businesses, what we saw in 2008 was that the majority of our portfolio performed extremely well and that includes our snack and food businesses around the world as well as our beverage businesses outside North America.

Let me just quickly give you the highlights of each. Frito-Lay North America was rock solid throughout the year. They adjusted rapidly to the changing commodity picture with excellent revenue management which enabled them to sustain volume momentum while achieving 8% revenue growth and 7% profit growth.

Quaker Foods responded heroically to the flooding of our main Cedar Rapids plant, restored operations within a matter of weeks and delivered 8% profit growth. Latin America foods had an absolutely terrific year with revenue and profit growth above 20% reflecting solid operating performance in our key businesses in Mexico, as well as very strong growth in the developing countries of South America.

Latin American beverages grew volume mid single-digits on the strength of its diversified portfolio of carbonated soft drinks and non-carbs. And PepsiCo international had another year of mid teens earnings growth reflecting the balance of solid performance in our developed markets and continued high growth in our developing markets of Eastern Europe, the Mid East as well as China and India and we expect these businesses to continue to perform well in 2009.

The piece of the portfolio that didn’t perform up to expectations was our North American beverage business which continued to be buffeted by the category dynamics. As you know, this was an unprecedented year for the LRB category in North America with the first decline in category volume in at least the last half century. Clearly this remains our key area of focus. I’ll come back to you in a few minutes with our thoughts on why we believe this will turn around and what actions we are taking to change the trajectory.