NM - Not Meaningful
System bottler case sales (BCS) is our standard volume measure. It represents PepsiCo-owned brands as well as brands we have been granted the right to produce, distribute and market nationally.
1997 vs. 1996
Net sales increased $118 million reflecting volume growth, led by take-home packaged products, partially offset by lower effective net pricing. The decrease in effective net pricing was primarily in take-home packaged products, reflecting an intensely competitive environment.
BCS increased 4%, primarily reflecting double-digit growth by the Mountain Dew brand. Non-carbonated soft drink products, led by Aquafina bottled water and Lipton Brisk tea, grew at a double-digit rate. Our concentrate shipments to franchisees grew at a slower rate than their BCS growth during the year.
Reported operating profit declined $115 million. Ongoing operating profit declined $63 million, reflecting the lower effective net pricing, higher S&D costs and increased A&M. S&D grew significantly faster than sales, but in line with volume. A&M grew significantly faster than sales and volume, primarily reflecting above average levels of expenditures late in 1997. These unfavorable items were partially offset by the volume gains and lower packaging and commodity costs. G&A savings from centralizing certain administrative functions were fully offset by Year 2000 spending and infrastructure development costs related to our new fountain beverage sales team. The decline in ongoing operating profit also reflects lapping 1996 gains from the sale of an investment in a bottling cooperative and a settlement made with a supplier.
Net sales declined $164 million. The decline was due to unfavorable currency translation effects, primarily driven by Spain and Japan.
BCS increased 1%. Strong double-digit growth in China, the Philippines and India was partially offset by double-digit declines in Brazil, Venezuela and South Africa. The declines in Venezuela and South Africa reflect the impact of the unexpected loss of our bottler in August 1996 and the cessation of our joint venture operation, respectively. In November 1996, we entered into a new joint venture to replace the Venezuelan bottler. Total concentrate shipments to franchisees increased at about the same rate as their BCS.
Reported operating losses declined $693 million. Ongoing operating results improved by $271 million, reflecting a small profit in 1997 compared to a loss in 1996. The increase in ongoing operating results was driven by lower manufacturing costs, reduced net losses from our investments in unconsolidated affiliates and lower G&A expenses. Operating results also benefited from the lapping of 1996’s higher-than-normal expenses from fourth quarter balance sheet adjustments and actions. The lower manufacturing costs were primarily due to favorable raw material costs and lower depreciation resulting from certain businesses held for disposal. The reduced net losses from our unconsolidated affiliates were primarily driven by the absence of losses from BAESA. The lower G&A expenses reflect savings from our fourth quarter 1996 restructuring of about $70 million.
1996 vs. 1995
Net sales rose $307 million. The gain reflects volume growth, led by carbonated soft drink products, and higher effective net pricing.
BCS increased 4%, with solid increases in Brand Pepsi and the Mountain Dew brand. Non-carbonated soft drink products, led by Aquafina bottled water and Hawaiian Punch fountain syrup, grew at a double-digit rate. Our concentrate shipments to franchisees grew at a slightly faster rate than their BCS growth.
Operating profit increased $174 million. The growth reflects the volume gains, lower product costs and the higher effective net pricing. A&M expenses grew significantly faster than sales, primarily due to the Pepsi Stuff promotion. S&D expenses grew at the same rate as sales and volume. Profit growth was aided by lapping charges taken in 1995, primarily for losses on supply contracts, take-or-pay co-packing penalties and a write down of excess co-packing assets. A 1996 gain on the sale of an investment in a bottling cooperative and a 1996 settlement with a supplier for purchases made in prior years also helped profit growth.
Benefits of approximately $130 million related to the 1992 U.S. restructuring were achieved in 1996 due to the centralization of purchasing and improved administrative and business processes. All benefits from the restructuring will be reinvested in the business.
In 1996 we began to implement a new strategy to focus on building our core business in markets in which we are already strong and in certain emerging markets. Decisions were made accordingly to dispose of certain businesses and to restructure operations, resulting in unusual impairment and restructuring charges. Liabilities associated with the restructuring charge were expected to be paid by the end of 1997 and the restructuring was expected to generate about $50 million in savings in 1997 and about $80 million a year thereafter.
Net sales declined $187 million, primarily due to unfavorable currency translation impacts and lower volume. The volume decline reflects lower concentrate shipments to franchisees, partially offset by higher packaged product sales to retailers.
BCS decreased 2%. Excluding the impact of the unexpected loss of our Venezuelan bottler, BCS declined 1%. A single-digit decline in Latin America was partially offset by strong double-digit growth in China and India. Our concentrate shipments to franchisees declined at a significantly faster rate than their BCS decline.
Reported operating results declined $958 million. Ongoing operating results declined $382 million. The decline reflects broad-based increases in A&M, higher-than-normal expenses from fourth quarter balance sheet adjustments and actions, increased net losses from our unconsolidated affiliates and a decline in volume. The increased net losses from our unconsolidated affiliates were driven by our equity share of BAESA’s operating losses.