PepsiCo earnings climb 40% behind international growth

by Jeff Gelski
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PURCHASE, N.Y. — Double-digit growth from PepsiCo International helped lift PepsiCo Inc. to earnings per share of $3.34 for fiscal year 2006 ended Dec. 31, 2006, which was a 40% increase from $2.39 per share in the previous fiscal year. Net income of $5,642 million was up from $4,078 million.

Earnings for fiscal year 2006 included tax benefits of 37c per share and a charge of 3c per share related to Frito-Lay North America’s manufacturing network consolidation. Fiscal year 2005 results included an impact of 27c per share related to PepsiCo’s repatriation of international cash, one more reporting week than the company had in 2006 and restructuring actions. Excluding all these items, PepsiCo’s earning per share increased 13% to $3 per share in 2006.

While the international business delivered net revenue growth of 14% and operating profit growth of 21%, Frito-Lay North America chipped in with net revenue growth of 5% and operating profit growth of 3%.

"We also made good progress on our key strategic initiatives: providing greater choices to consumers in the area of healthier snacks and beverages; strengthening our international presence; and advancing our business process transformation project, including our SAP systems implementation," said Indra Nooyi, president and chief executive officer of PepsiCo.

For fiscal year 2007, PepsiCo expects mid-single-digit volume and net revenue growth and earnings per share of at least $3.30. Operating activities are expected to provide cash of about $7 billion.

PepsiCo reported net revenue of $35,137 million in fiscal year 2006, up 8% from $32,562 million, as all divisions reported revenue growth. Excluding the impact of the extra reporting week in 2005, net revenue increased more than 9% in 2006.

PepsiCo International net revenue jumped to $12,959 million from $11,376 million. Snack volume grew 9% in PepsiCo International thanks to mid-single-digit growth for Gamesa in Mexico and double-digit growth in Russia, Turkey and Egypt. International beverage volume growth was 7% led by double-digit gains in the Middle East and Argentina.

F.L.N.A. net revenues for the fiscal year increased to $10,844 million from $10,322 million. Gains in Doritos, Sunchips, Tostitos, Lay’s and Cheetos led revenue growth.

PepsiCo Beverages North America reported net revenues of $9,565 million in the fiscal year, up from $9,146 million the previous year. Non-carbonated beverages reported mid-single-digit growth. Waters, teas and energy drinks increased double digits to offset declines in Gatorade and Tropicana Pure Premium. Carbonated soft drinks suffered a low-single digit decline. High-single-digit growth in Sierra Mist partially offset low-single-digit declines in Pepsi and Mountain Dew.

Quaker Foods North America had fiscal year net revenues of $1,769 million, up from $1,718 million. Volume declined slightly as single-digit declines in side dishes and Aunt Jemima syrup and mix offset gains in read-to-eat cereals and oatmeal.

PepsiCo also reported gains for the fourth quarter ended Dec. 31, 2006. Earnings per share of $1.06 for the fourth quarter was up from 65c in the previous year’s fourth quarter. Net income of $1,784 million increased from $1,108 million. Net revenues of $10,383 million were up from $10,096 million in the previous year’s fourth quarter.

PepsiCo in the fourth quarter reported a pre-tax charge of $67 million related to the previously announced action to consolidate the F.L.N.A. manufacturing network to 32 sites from 34.

PepsiCo operating profit

(in billions)

Division FY2006 FY2005

F.L.N.A. $2.62 $2.53

P.B.N.A. $2.06 $2.04

P.I. $1.95 $1.61

Q.F.N.A. $0.55 $0.54

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