Pepsi Bottling Group, Inc. (PBG), the manufacturer of Pepsi-Cola beverages, Tuesday revealed a multi-year restructuring program expected to result in annualized pre-tax savings of $150 million to $160 million when completed. The initiative is likely to reduce 3,150 jobs globally with most of the employee reduction planned in Mexico. The company also lowered its comparable earnings per share guidance for 2008, citing recent economic events.
The Somers, New York-based company estimates to incur a $1.52-$1.57 per share charge in the fourth quarter associated with the restructuring program and asset impairment related to its business in Mexico.
The restructuring initiative, christened Structured to Succeed, aims at strengthening the company's customer service and selling effectiveness, simplifying decision making and streamlining the organization as well as driving greater cost productivity to adapt to current macroeconomic challenges. The program also intends to rationalize the company's supply chain infrastructure.
The cost of the program is projected to result in cumulative charges of $140 million to $170 million beginning with an anticipated savings of at least $70 million in 2009. The company projects a pre-tax charge of $80 million to $100 million, or $0.27-$0.32 per share, after tax for the fourth quarter of 2008.
As part of the restructuring initiative, the company will continue to focus on refining its selling and service organization in the U.S. and Canada, reducing its general and administrative expenses, and enhancing the efficiency of its supply chain infrastructure. About 750 jobs are expected to be impacted by the implementation of these plans.
The world's second-largest soft-drink distributor also intends to modify its defined benefit pension plans, which will generate long-term savings and reduce future financial obligations. The pension changes will occur over the next several years and some of the associated charges cannot be estimated at this time, the company said. Pepsi Bottling will also take steps to rationalize its supply chain, leading to the closure of four PBG facilities in the U.S.
In Europe, the company said steps will be taken to streamline its organization to improve operating efficiencies and marketplace effectiveness. These actions are expected to impact about 200 jobs across Pepsi Bottling's European countries.
In Mexico, the company has completed its previously announced strategic review of the business, which has led to the implementation of a range of initiatives meant to improve the profitability of PBG Mexico. These efforts include overhauling the company's go-to-market system, with an emphasis on achieving greater productivity in the areas of selling and delivery. PBG also plans to close three plants and about 30 distribution centers, as well as eliminate about 700 routes over time. These changes will impact about 2,200 jobs in Mexico.
Commenting on the program, the company's chairman and chief executive officer Eric Foss said, "We believe that these changes to our organizational structure, combined with the executive appointments we announced earlier this month, will enable us to increase our cost competitiveness, simplify our decision making processes and provide better customer service."
The company, which is 33%-owned by PepsiCo Inc., also announced a pre-tax impairment charge of $412 million or $1.25 per share after tax related to its business in Mexico, which would be recorded in the fourth quarter. The non-cash charge stems primarily from the reduction in the value of the company's Electropura water business, which has performed below expectations.
The restructuring initiative and the impairment charge will result in cumulative pre-tax charges of $492 million to $512 million in the fourth quarter of 2008, or $1.52-$1.57 per share after-tax.
Looking ahead to 2008, the company now expects comparable earnings per share to be in a range of $2.20-$2.26, lower than the previous projection of $2.32-$2.38 per share. The company now expects reported earnings of $0.62-$0.73 per share for the year. Analysts expect earnings in the range of $2.30-$2.39 per share for 2008. Analysts' estimates typically exclude special items.
While announcing its third-quarter results in September, the company had revised its fiscal 2008 earnings guidance and said it expected between $2.32 and $2.38 per share, compared to the previous forecast of $2.30-$2.38 per share.
The revised guidance announced Tuesday is due primarily to recent economic events, such as the weakening of foreign currencies and a higher than expected interest cost on the company's recent bond issuance. The company noted that these two items would hurt its previous comparable earnings per share guidance for the fourth quarter and the full year.
Operating free cash flow for 2008 is expected to be about $525 million, excluding the charge from the Structured to Succeed initiative. This forecast is based on current exchange rates and does not reflect the potential for further weakening of foreign currencies.
The company expects that the foreign currency weakness and increased interest costs will continue into 2009.
Last month, Coca-Cola Enterprises Inc. (CCE), the largest bottler for Coca-Cola Co. (K), lowered its earnings forecast for the full year 2008 once again, and attributed the revision to an operating income decline in North America in a low 20% range, and a $35 million reduction in funding from Coca-Cola Co. and a high single-digit increase in North America concentrate costs.
PBG closed Monday's regular trade at $19.91, down from the previous close of $20.84, on 1.68 million shares. For the past year, the stock trended in the range of $19.87-$43.03.
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June 05, 2026 16:18 ET A busy week for economic news flow saw a slew of reports being released that reflected the trends in the U.S. labor market. In Europe, economic growth and inflation data gained attention as the European Central Bank and Bank of England head for policy session later in the month. In Asia, the monetary policy session of the Indian central bank was in focus as the country, a major oil importer, reels under the pressures of a weaker rupee and rising inflation.