Pepsi Bottling Swings to Profit

The Pepsi Bottling Group Inc. (PBG) reported fourth-quarter results before the opening bell on Tuesday. The company swung to a net income of $90 million from a net loss of $271 million in the year earlier quarter. Excluding certain special items, earnings per share came in at 59 cents, easily topping the Zacks Consensus Estimate of 43 cents derived from 8 covering analysts. The better-than-expected result was primarily attributable to management initiatives to control overheads coupled with the absence of impairment charges, which existed in the year-ago period. 

The company has a good record of beating earnings expectations as it has topped the Zacks Consensus Estimate in three out of previous four quarters with an average positive surprise of 30%, or 3 cents. The earnings beat in the fourth quarter acquires more significance as the Zacks Consensus Estimate dipped to 43 cents from 44 cents in just the past week. 

Meanwhile, Pepsi Bottling’s net revenues for the fourth quarter remained essentially flat at $3.8 billion. Revenue in the U.S./Canada segment grew marginally by 0.6% to $2.92 billion, which was fully offset by a 5.2% decline in Mexico to $367 million with the Europe division remaining essentially constant at $516 million. 

Total worldwide physical case volume declined 3% for the quarter. On a constant currency basis Pepsi Bottling’s net revenue per case improved 3% primarily due to strong pricing actions partially offset by weak global macroeconomic conditions. 

Gross margin for the quarter reduced 70 basis points (bps) to 43.9% from 44.6% in the year-ago quarter mainly due to volume declines. However, Pepsi Bottling recorded an operating income of $186 million during the quarter, compared to an operating loss of $264 million in the year-ago period. The improvement was attributable to lower selling, general and administrative expenses coupled with the absence of impairment charges of $412 million, which existed in the year-ago quarter. 

Pepsi Bottling ended the quarter with cash and cash equivalents of $907 million and long-term debt of $5.4 billion, compared to $966 million of cash and $4.8 billion of long-term debt in the year-ago period. During the year, the company utilized $556 million towards capital expenditure, $523 million towards repayment of borrowings and $150 million towards dividend payments. 

The Zacks Consensus Estimate on the company’s earnings for the first quarter of 2010 is currently pegged at 16 cents per share, which has remained constant over the past 2 months. For the full-year 2010, analysts are bearish on Pepsi Bottling’s earnings with the Zacks Consensus Estimate moving down by 2 cents over the past month to $2.65 per share. 

Both Pepsi Bottling and PepsiAmericas Inc. (PAS) are being acquired by PepsiCo Inc. (PEP - Analyst Report) under a $7.8 billion deal, which is expected to conclude in the first quarter of 2010.

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