Pepsi raises profit estimates amidst restructuring aims

By Neil Merrett

- Last updated on GMT

Related tags Cent Soft drink Percentage point Coffee

Pepsi Bottling Group (PBG) has lifted its full year operating
profit guidance by about two percentage points to between 10 per
cent and 11 per cent after revenues rose by eight per cent to
$3.7bn (€2.6bn) during the third quarter.

The company, which is the world's largest bottler of Pepsi-branded soft drinks, revealed yesterday that operating profit rose 12 per cent on an organic basis to €433m (€306m) for the twelve-week period ending 8 September.

Operating margins were up by a single percentage point over the same period last year to 12 per cent.

With soft drink manufacturers under increasing pressure to meet changing consumer demands for healthier beverages as well as offsetting increasing commodity costs, Pepsi believes it is meeting these market challenges.

Group president Eric Foss said that the PBG's latest restructuring strategy, along with consolidation of its operations in the burgeoning Russian market are expected to lift its full year profitability "In the third quarter, we delivered record sales and comparable operating income driven by outstanding performance in the US and Canada and in Europe, led by Russia," he stated. "

Our strong top-line growth, gross profit per case improvement and disciplined cost management led to solid profit and cash flow increases."

The company announced the restructuring strategy in August, as part of plans to remain competitive against its rivals in soft drink production.

This focus led the group to announce the closure of two of its eight North American plants, along with increased spending on its distribution network.

PBG said it was also aiming to cut 150 management positions internationally.

To further shake up its distribution, the company revealed it was expecting to take a hit from its plan to revamp its vending machines from the beginning of this month.

The group said it expected a charge of about $50m before tax to complete the programme by the second quarter of 2008.

In March, PBG said it had formed a joint venture in Russia under the name of PR beverages.

Through the arm, the company aims to make strategic investments in Russia to accelerate sales growth in the country.

Of the company's international operations, the North American division posted sales growth of four per cent to $2.6bn (€1.8bn) .

Operating profit rose by about seven per cent to $300m (€212m), with operating margins posting a 0.3 percentage point improvement to 11.2 per cent.

Its European operations PBG posted a 23.2 per cent increase in revenues compared to the same period last year, which rose to $683m (€483m) .

Operating profit also improved, increasing to $110m (€77m), a rise of 55 per cent.

The company attributed the growth to a four per cent increase in sales volumes aided by Russia, where non-carbonated beverage sales were up by more than 20 per cent.

In Mexico, sales of the company's brands rose by 9.7 per cent to $381m (€269m).

However, operating profit fell strongly by 34.7 per cent to $23m (€16m) with sales volumes declining by percentage point due to a shift away from carbonated soft drinks.

Operating margins fell by five percentage points in the region.

Related topics Manufacturers PepsiCo

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