Pepsi Bottling Group Inc. (PBG), a distributor of Pepsi-cola beverages, Tuesday reported higher third-quarter profit, driven by tax audit settlement and mark-to-market related gains. The company's revenues were down year-over-year, reflecting lower volume. The Somers, New York-based company confirmed its comparable earnings per share and currency neutral revenue growth outlook for fiscal 2009.
Third-quarter net income attributable to the company was $254 million or $1.14 per share, compared with $231 million or $1.06 per share reported in the corresponding period last year. Net income rose to $310 million from $274 million in the prior-year quarter.
The company said that the latest quarter results included a net after-tax gain of $17 million or $0.08 per share, resulting from the favorable settlement of tax audits, previously announced restructuring charges, advisory fees relating to the pending PepsiCo transaction, and mark-to-market gains relating to commodity hedges.
On a comparable basis, the company's earnings per share for the third quarter were $1.06. On average, 10 analysts polled by Thomson Reuters expected the Somers, New York-based company to earn $1.05 per share for the quarter. Analysts' estimates typically exclude special items.
PBG also reported quarterly net revenues of $3.63 billion, down 5% from $3.81 billion in the prior-year quarter. Eight analysts had a consensus revenue estimate of $3.73 billion for the quarter. On a currency neutral basis, the company's worldwide revenue increased 2% in the third quarter. PBG said that the revenue performance reflected solid currency neutral net revenue per case growth partially offset by soft volume.
For the preceding second quarter, PBG reported a 16.7% rise in its profit to $238 million, benefited by a tax settlement gain. Net income attributable to PBG for the period was $211 million or $0.96 per share. The company's second-quarter revenues dropped 7% to $3.27 billion, reflecting its poor performance in Europe and Mexico.
PBG said that its third-quarter worldwide net revenue per case declined 3% on a reported basis, while it rose 4% on a currency neutral basis. This included currency neutral growth of 3% in the U.S. and Canada, 7% in Europe, and 6% in Mexico, PBG noted.
The company also reported a 2% drop in its total worldwide physical case volume for the third quarter. Volume in the U.S. and Canada segment was down 1%. In Mexico, volume increased 1%, while European volume declined 5%.
Further, PBG said that COGS per case was up 6% on a comparable, currency neutral basis, consistent with the company's expectations. Reported COGS per case declined 2%.
On August 3, PBG and PepsiCo (PEP) entered into a definitive merger agreement, under which PepsiCo will acquire all outstanding shares of PBG common stock it does not already own for $36.50 in cash or 0.6432 shares of PepsiCo common stock for each share of PBG. PepsiCo currently owns 33% of the outstanding shares of PBG. The transaction is expected to be finalized in late 2009 or early 2010.
PepsiCo has also reached a definitive agreement with PepsiAmericas (PAS) to acquire the remaining shares in it for $28.50 in cash or 0.5022 shares of PepsiCo common stock for each share of PAS. The total value of the deals would be about $7.8 billion in cash or stock.
It was on April 19 that PBG initially received an unsolicited, non-binding proposal from PepsiCo to acquire all of the outstanding shares of PBG not already owned by PepsiCo for $29.50 per share. However, PBG rejected the offer on valuation grounds.
PBG said it has retained certain external advisors in connection with the transaction and expects to incur aggregate fees in the range of $40 million to $60 million. For the 12 and 36 weeks ended on September 5, the company has recorded pre-tax charges of $22 million, or $0.09 per share, and $37 million, or $0.13 per share, respectively, relating to these services.
PepsiCo said Monday that it plans to form a new entity comprising the bottling businesses, effective upon the closing of the mergers. The new unit will be called PepsiCo Bottling North America, or PBNA, and Eric Foss, current chairman and Chief Executive Officer of PBG, will become its Chief Executive Officer, reporting to PepsiCo Chairman and Chief Executive Indra Nooyi.
For the nine-month period, PBG posted net income of $606 million, higher than last year's $509 million. Net income attributable to PBG rose to $522 million or $2.39 per share from $433 million or $1.94 per share in the previous year. The company also reported revenues of $9.41 billion, down from $9.99 billion in the same period of fiscal 2008.
Among rivals, Coca-Cola Bottling Co. Consolidated (COKE), which is about 27.1% owned by the Coca-Cola Co. (KO), said in August that its profit for the second quarter dropped 19.7% from a year ago. The company's net income was $12.2 million or $1.33 per share, compared with $15.2 million or $1.66 per share in the same quarter a year ago. Net sales declined to $336.3 million from $337.7 million in the preceding year quarter.
Going ahead, Foss stated, "We remain confident in our full-year earnings outlook and we're on track to deliver a very good year despite the challenging macroeconomic environment."
For fiscal 2009, the company continues to expect results at the high-end of its comparable earnings per share guidance of $2.30 to $2.40. This includes a $0.13 per share negative impact from translational foreign currency headwinds, PBG noted. Analysts expect the company to report earnings of $2.40 per share for fiscal 2009.
The company also forecasts currency neutral top-line growth in the low-single digits for the full-year 2009.
Currency neutral operating income on a comparable basis is expected to grow in the low to mid-single digits for the year. The company also anticipates capital expenditures of about $550 million to $600 million for fiscal 2009.
PBG is trading at $37.17, down $0.14, on a volume of 247,391 shares.
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