Higher raw material costs slow earnings growth at PepsiAmericas

by Eric Schroeder
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MINNEAPOLIS — Higher raw material costs led a slowdown in earnings at PepsiAmericas Inc., the world’s second-largest manufacturer, seller and distributor of PepsiCo beverages with operations in 19 U.S. states, Central Europe and the Caribbean.

Net income in the third quarter fell 17% to $53.1 million, equal to 42c per share on the common stock, down from $63.7 million, or 47c per share, in the same period a year ago. The year-ago results include a gain of 1c per share related to high-fructose corn syrup settlement proceeds.

Sales during the quarter rose 8% to $1,064.2 million, up from $982.9 million.

Worldwide volume increased 9%, or 2.8%, on a "constant territory" basis. PepsiAmericas said pricing increased only 1.5% on a constant territory basis, with pricing up 1.3% in the United States.

U.S. volume was up 1% in the quarter compared with a year ago. Carbonated soft drink volume declined mid single-digits, reflecting continued overall softness in the category. At the same time, the company grew the non-carbonated beverage category more than 30%, as Aquafina volume rose 40%.

Sales in the U.S. grew 2.3% to $841.5 million, driven by volume and net pricing increases. The company said its single-serve packages in the quarter were flat, while take-home packages slowed to 1% growth over the prior year.

"In the U.S., our top-line growth continued, with a better balance between volume and pricing," said Robert C. Pohlad, chairman and chief executive officer. "However, significant volume increases in our take home Aquafina business and a soft single-serve business continue to unfavorably impact our net pricing. This, along with higher raw material costs, has resulted in lower domestic profits than a year ago."

Mr. Pohlad added that higher raw materials costs will reduce fourth-quarter earnings by 2c per share. For the full year, PepsiAmericas lowered its outlook to a profit of $1.30 to $1.33 per share from $1.35 to $1.39 per share.

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