Revenue grew 10 percent for the full year to $43.3 billion
Worldwide beverage and snacks volume both up 3 percent for the year
International full-year volume growth of 10 percent for beverages and 5.5 percent for snacks
Full-year reported EPS was $3.21; core EPS up 9 percent to $3.68
Fourth-quarter reported EPS of $0.46; core EPS up 11 percent to $0.88
Cash flow from operations of $7 billion
Productivity for Growth initiative on target to deliver cumulative savings of more than $1.2 billion over the next three years
PURCHASE, N.Y., Feb. 13 /PRNewswire-FirstCall/ -- PepsiCo, Inc. (NYSE: PEP) today reported solid results for the fourth quarter and full year 2008. For the full year, the company grew net revenue 10 percent to $43.3 billion and delivered earnings per share (EPS) of $3.21 on a reported basis. Excluding the impact of items affecting comparability(1), PepsiCo's full-year core EPS was up 9 percent to $3.68, in-line with previous guidance, reflecting the company's balanced global portfolio of strong brands, consumer preferred innovation and net revenue management.
In the fourth quarter, PepsiCo delivered a 3 percent increase in net revenue and reported EPS of $0.46. Excluding the impact of items affecting comparability, the company's fourth-quarter core EPS was up 11 percent to $0.88, in-line with previous guidance, reflecting strong net revenue management and cost discipline. Foreign exchange adversely impacted net revenue growth in the quarter by 5.5 percentage points and core EPS by $0.05.
Indra Nooyi, PepsiCo Chairman and Chief Executive Officer said, "PepsiCo's operating agility and disciplined execution delivered solid results in an extremely difficult year. We expect 2009 will present a challenging environment. However, I am confident that we have robust plans and an experienced team in place to navigate capably through the turbulent environment. More importantly, we are well positioned to manage our business to deliver short-term results while also driving long-term sustainable growth."
(1) Please refer to "Reconciliation of GAAP and Non-GAAP Information" in the attached exhibits for a description of these items.

Summary of 2008 Division Results

Fourth-Quarter % Growth
-----------------------
Core* Reported
Division Division
Net Operating Operating
Volume Revenue Profit Profit
----------------------------------------------------------
PAF flat 5 11 2
FLNA (1) 7 9 (0.5)
QFNA flat 2 13 (5)
LAF 1 1 15 17

PAB (6) (10) (16) (67)

PI
8/14(**) 12 4 (12)
UKEU 8/16 10 (9) (27)
MEAA 8/13 15 63 84

Total
Divisions 2/1(**) 3 3 (19)


Full-Year % Growth
------------------
Core* Reported
Division Division
Net Operating Operating
Volume Revenue Profit Profit
----------------------------------------------------------

PAF 1 11 10 8
FLNA 1 8 7 4
QFNA (1.5) 2 8 2.5
LAF 3 21 24 26

PAB (3) (1) (7) (19)

PI
8/13(**) 19 16 13
UKEU 6/17 17 10 5
MEAA 10/11 22 24 25

Total
Divisions 3/3(**) 10 6 Flat

*Core results are non-GAAP financial measures that exclude the
commodity mark-to-market net impact included in corporate
unallocated expenses, certain tax benefits, certain restructuring
actions including, for 2008, a $543 million pre-tax charge
associated with the company's Productivity for Growth initiative
and a $138 million pre-tax charge for the company's share of The
Pepsi Bottling Group's restructuring initiative and impairment
charge. For more information about our core results, see
"Reconciliation of GAAP and Non-GAAP Information" in the
attached exhibits.

** Snacks/beverages
PepsiCo Americas Foods (PAF) delivered double-digit core division operating profit growth for both the full year and the fourth quarter, despite continued commodity cost pressure. In the quarter, net revenue grew 5 percent and core operating profit grew 11 percent. Foreign exchange adversely impacted net revenue and core operating profit growth by 5 percentage points and 4.5 percentage points, respectively.
Frito-Lay North America (FLNA) performed well in the fourth quarter. Net revenue grew 7 percent, reflecting growth across all retail channels in the United States. Core operating profit grew 9 percent, driven by successful net revenue management and favorable price elasticity, partially offset by higher commodity costs. Volume was down less than one percent in the quarter, attributable to weight outs.
A broad innovation line-up is expected to contribute to continued top-line growth in 2009. In the second quarter of 2009, FLNA intends to increase its value offerings to consumers on its corn-based Tostitos, Fritos, Cheetos and Doritos by adding 20 percent more product into its take-home bags without increasing the price.
At Quaker Foods North America (QFNA) in the fourth quarter, net revenue grew 2 percent and core operating profit grew 13 percent. Production returned to normal levels in the fourth quarter following a flood at QFNA's major manufacturing facility in Cedar Rapids, Iowa, at the end of the second quarter. In addition, effective net pricing and cost discipline contributed to core operating profit growth.
At Latin America Foods (LAF) net revenue increased 1 percent and core operating profit grew 15 percent, despite unfavorable foreign exchange impact. Foreign exchange adversely impacted net revenue and core operating profit growth by 11 percentage points and 16 percentage points, respectively. Net revenue growth was driven by favorable effective net pricing. An insurance recovery associated with asset losses resulting from a 2007 fire at a snack plant in Brazil contributed 4 percentage points to core operating profit growth.
Volume increased nearly 1 percent in the quarter, reflecting mid-single-digit volume growth at both Gamesa in Mexico and also in our foods businesses in South America. Volume growth was partially offset by a double-digit volume decline at Sabritas in Mexico, primarily attributable to weight outs.
PepsiCo Americas Beverages (PAB) navigated a challenging year in the United States as the liquid refreshment category declined for the first time on a year-over-year basis. PAB volume declined 3 percent for the year. In the fourth quarter, volume declined 6 percent and net revenue declined 10 percent partly due to the lapping of the launch of G2 and SoBe Lifewater in the year ago period as well as the timing of shipments related to the revitalization of our North American beverage portfolio. Core operating profit declined 16 percent, largely due to softer volume and higher input costs. Foreign exchange adversely impacted net revenue and core operating profit growth by 2 percentage points and 3.5 percentage points, respectively.
At the end of the fourth quarter, PAB started the rollout of a revitalized beverage portfolio into the North American market. PAB's portfolio features new brand identities for trademarks Gatorade, Pepsi, Sierra Mist and Mtn Dew, as well as key product innovations such as a new formulation of SoBe Lifewater, sweetened with PureViaTM, an all-natural, zero-calorie sweetener recently approved by the FDA. The revitalized portfolio is supported by all-new, multi-platform marketing campaigns.
The company's LAB business continues to generate solid top-line volume and bottom-line results.
PepsiCo International (PI) delivered core operating profit growth for the year of 16 percent on snack volume growth of 8 percent and beverage volume growth of 13 percent. For the quarter, core operating profit was up 4 percent on similar volume growth, reflecting a 15 percentage point adverse foreign exchange impact.
In the quarter, the Middle East/Africa/Asia (MEAA) segment grew snack volume by 8 percent, driven by double-digit growth in China, and growth in other emerging markets such as South Africa and the Middle East. MEAA snack growth was slightly offset by a low-single-digit volume decline in India due in part to a potato shortage. Beverage volume grew 13 percent and was broad-based, driven by double-digit growth in India and China.
MEAA net revenue grew 15 percent and core operating profit improved 63 percent in the quarter off of a relatively small base. Core operating profit growth was driven by positive net pricing and favorable mix. Foreign exchange negatively impacted net revenue growth by 8 percentage points and core operating profit growth by 29 percentage points. The net impact of acquisitions and divestitures contributed 1 percentage point to net revenue growth and decreased core operating profit by 3 percentage points.
In the quarter the UK/Europe (UKEU) segment grew snack volume 8 percent, including 5 percentage points from PI's Marbo and Penelopa acquisitions. In Russia, double-digit volume growth in snacks resulted from improved distribution and the strength of locally relevant brand extensions. At Walkers in the United Kingdom, volume was down low-single-digits, reflecting pricing to offset increased input costs.
UKEU beverage volume grew 16 percent in the fourth quarter. The expansion of the Pepsi Lipton joint venture across Western Europe and the Lebedyansky acquisition in Russia were the primary drivers of beverage volume growth.
For the full year, UKEU grew net revenue 17 percent and core operating profit 10 percent. In the quarter, net revenue grew 10 percent and core operating profit was down 9 percent, impacted by commodity inflation. Foreign exchange adversely impacted both net revenue and core operating profit growth by 12 percentage points in the quarter; acquisitions contributed 14 percentage points to net revenue growth and 7 percentage points to operating profit growth. Financial results for the Marbo acquisition in Serbia and the Lebedyansky acquisition in Russia are reflected in this quarter's reported performance for the first time.
Corporate Unallocated
For the quarter, net mark-to-market losses on commodity hedges were $227 million, compared with an $18 million gain in the comparable period a year ago. Other corporate unallocated costs decreased $100 million compared to the fourth quarter of last year, reflecting reductions in deferred compensation costs (which were offset by an increase in net interest expense from losses on investments used to economically hedge these costs) and lower employee-related costs. Net interest expense increased $108 million, due to hedge losses on investments associated with deferred compensation, debt associated with the Lebedyansky acquisition and share repurchases.
PepsiCo's reported tax rate was 28.9 percent for the fourth quarter and 26.8 percent for the full year. Excluding the impact of items affecting comparability, PepsiCo's core tax rate was 27.7 percent for the fourth quarter and 26.9 percent for the full year.
As part of its commitment to returning cash to its shareholders, the company spent $4.7 billion repurchasing its shares in 2008.
Productivity for Growth
The company expects its productivity program will produce cumulative pre-tax savings of more than $1.2 billion over the next 3 years with $350 million to $400 million of cost savings flowing through in 2009. As a result of the program, the company incurred a pre-tax charge of $543 million in the fourth quarter of 2008, comprised of: $212 million of severance and other employee-related costs associated with the termination of about 3,500 employees; $149 million for asset impairments (all non-cash) resulting from plant closures and related actions; and $182 million for other costs. In total, the charges related to the Productivity for Growth program are expected to be $575 million to $600 million. The bulk of the program was completed by year-end, and the company expects the remaining initiatives will take place in the first half of 2009.
2008 Cash Flow
PepsiCo generated $7.0 billion in cash provided by operating activities, including $159 million of cash payments associated with Productivity for Growth. Net capital spending totaled $2.3 billion.
2009 Guidance
PepsiCo is confident in the underlying strength of its business and in its ability to generate solid top- and bottom-line performance in 2009 on a constant currency basis. However, with all of the uncertainties in the current macroeconomic environment, the company believes that it is prudent to offer a much wider range in our guidance than it has in the past. PepsiCo is therefore providing full-year 2009 guidance for both net revenue and core(2) EPS of mid- to high-single-digit growth on a constant currency(2) basis. The company anticipates foreign exchange, at current spot rates, would adversely impact constant-currency core EPS by approximately 8 percentage points.
In 2009, given current market conditions, the company does not anticipate selling shares of its anchor bottlers, The Pepsi Bottling Group (PBG) or Pepsi Americas, Inc. (PAS). PBG and PAS share sales collectively added $0.06 to PepsiCo's full year 2008 core EPS, and the assumption that shares will not be sold in 2009 has been factored into 2009 guidance.
The company expects the first half of 2009 - and the first quarter in particular - will present the most difficult year-over-year comparisons, in part reflecting commodity costs and foreign exchange rates.
PepsiCo will make a discretionary $1 billion contribution to its pension fund ($640 million after-tax cash impact). Excluding this item, cash from operating activities is expected to be about the same as 2008. The company expects a high-single-digit decrease in net capital spending.
In addition, the company intends, subject to market conditions, to spend up to $2.5 billion repurchasing its shares in 2009. The company expects its full-year reported and core tax rates to be about the same as the core tax rate in 2008.
(2) Please refer to the Glossary for definitions of Constant Currency and Core, and for a description of the items excluded from our Core EPS guidance for 2009.