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Dear Friends:
Hope you like our web-footed friends. They're our way of saying we've been working long and hard to ready PepsiCo for a big, bright future.
For nearly three years PepsiCo has been undergoing a major strategic transformation. And while 1998 certainly offered its share of challenges, I'm very pleased to report that our strategy is beginning to pay off:
We also acquired Tropicana Products, Inc., the world's most successful juice company, an exciting step that gives PepsiCo several more outstanding trademarks with lots of growth potential.
When the dust settled on 1998, we reported earnings per share of $1.31, up 38% from the year before. Operating profit was down slightly, as we made important strategic investments in advertising and marketing and strengthened our sales and distribution systems.
Even with our acquisition of Tropicana, our return on invested capital was about 16%, a marked improvement from our average in the three years preceding our reshaping of PepsiCo. And operating cash flow from our core packaged goods
businesses surpassed $2 billion - for the second year in a row.
Do we face tough challenges? No question about it. But we always have. And fortunately nothing I see on the horizon changes the positive outlook for PepsiCo or is cause to shift our strategic course. In fact the challenges we face in the marketplace highlight exactly why we've worked so hard to refocus this great corporation. These days you can succeed only if you concentrate on what you do best and use your resources to their greatest advantage.
Let me offer some background.
Several years ago we assessed our aspirations for PepsiCo. We wanted nothing less than for this company to enter the 21st century as a truly outstanding financial performer, one that can consistently produce healthy returns to shareholders, year in and year out. We knew PepsiCo had the strength to do it. But we also knew we had to leverage our powerful global brands and abundant cash flow more effectively.
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Wayne Calloway 1935-1998
PepsiCo lost a great friend in 1998.
Wayne Calloway, retired chairman and chief executive, died in July after a long illness. Wayne was a gifted leader, an esteemed colleague and a man of singular grace and kindness.
In 29 years with PepsiCo, including 10 as CEO, he was wonderful to shareholders and all of us who had the privilege to work with him. His quiet intelligence, unwavering integrity and remarkable faith in people made him a truly extraordinary executive. He was also extremely dedicated - to PepsiCo, to his alma mater Wake Forest, to his community and especially to his family.
Wayne possessed many wonderful qualities. Yet what struck me most was that, for all his success, Wayne never lost his gentleness or warmth. Like so many of those who knew Wayne, I miss him greatly. And I know that feeling is shared by every PepsiCo employee and by thousands of others whose lives he touched.
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