PEPSI-COLA
See Management's Discussion and Analysis Pending Transactions/ Events on page 13.
The standard volume measure is system bottler case sales (BCS). It represents PepsiCo-owned brands, as well as brands, that we have been granted the right to produce, distribute and market nationally.
PEPSI-COLA NORTH AMERICA
|
|
% Growth Rates
|
|
($ in millions)
|
1998
|
1997
|
1996
|
.
|
1998
|
.
|
1997
|
.
|
|
|
|
|
|
|
Net Sales
|
$
|
8,266
|
$
|
7,899
|
$
|
7,788
|
.
|
5
|
.
|
1
|
.
|
|
Operating Profit
|
.
|
.
|
.
|
.
|
|
.
|
Reported
|
$
|
1,211
|
$
|
1,274
|
$
|
1,428
|
.
|
(5
|
)
|
(11
|
)
|
|
.
|
Ongoing
|
$
|
1,227
|
$
|
1,326
|
$
|
1,428
|
.
|
(7
|
)
|
(7
|
)
|
Ongoing excludes unusual impairment and other items of $16 in 1998 and $52 in 1997 (see Note 3). Unless otherwise noted, operating profit comparisons within the following discussions are based on ongoing operating profit.
|
1998 vs. 1997
Net sales increased $367 million or 5%. The increase reflects significant volume growth and contributions from acquisitions, reduced by unfavorable foreign exchange rates with Canada and lower effective net pricing. The increased sales volume was primarily in packaged products. Acquisitions contributed 1 percentage point to the sales growth.
BCS increased 6%, led by the strong single-digit growth of the Mountain Dew brand, contributions from Pepsi One (our new one-calorie cola) and strong double-digit growth of Aquafina bottled water and Lipton Brisk. Brand Pepsi and brand Diet Pepsi also contributed to this year's growth, both advancing at single-digit rates. Concentrate shipments to franchisees grew at a slightly faster rate than their BCS growth.
Reported operating profit decreased $63 million. Ongoing operating profit declined $99 million primarily due to planned increases in S&D and A&M and higher G&A costs, partially offset by volume growth. S&D grew faster than sales and volume, due to an increase in our sales force and higher depreciation, maintenance and labor costs associated with cooler and vendor placements. A&M expenses grew significantly faster than sales and volume reflecting new product launches, such as Pepsi One, and planned increases for Project Globe and Pop Culture promotions. The G&A growth includes higher spending on information systems related to the Year 2000 and other projects and higher costs associated with the continued building of our fountain business infrastructure.
1997 vs. 1996
Net sales increased $111 million reflecting volume growth, led by take-home packaged products, reduced 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 $154 million. Ongoing operating profit declined $102 million, reflecting the lower effective net pricing, higher S&D costs and increased A&M. S&D grew significantly faster than sales, but in line with volume. A&M grew significantly faster than sales and volume, primarily reflecting above average levels of expenditures late in 1997. These unfavorable items were reduced by the volume gains and lower packaging and commodity costs. G&A savings from centralizing certain administrative functions were fully offset by Year 2000 spending and infrastructure development costs related to our new fountain business sales team. The decline in ongoing operating profit is also due to the absence of 1996 gains from the sale of an investment in a bottling cooperative and a settlement made with a supplier.
PEPSI-COLA INTERNATIONAL
|
|
% Growth Rates
|
|
($ in millions)
|
1998
|
.
|
1997
|
|
1996
|
.
|
1998
|
.
|
1997
|
|
|
|
|
|
|
|
Net Sales
|
$
|
2,385
|
.
|
$
|
2,642
|
$
|
2,799
|
.
|
(10
|
)
|
(6
|
)
|
|
Operating Profit
|
.
|
|
.
|
|
|
|
Reported
|
$
|
(219
|
)
|
$
|
(144
|
)
|
$
|
(846
|
)
|
(52
|
)
|
83
|
|
|
|
Ongoing
|
$
|
(1
|
)
|
$
|
10
|
|
$
|
(270
|
)
|
NM
|
.
|
NM
|
|
Ongoing excludes unusual impairment and other items of $218 in 1998, $154 in 1997 and $576 in 1996 (see Note 3). Unless otherwise noted, operating profit comparisons within the following discussions are based on ongoing operating profit.
NM - Not Meaningful
|
1998 vs. 1997
Net sales declined $257 million or 10%. Excluding foreign currency impact, net sales would have declined 7%. This decline was primarily due to the absence of Japan bottling sales in 1998 as a result of the refranchising of our Japanese bottler late in 1997. Volume gains partially offset the decline in net sales. Weaker foreign currencies primarily in Thailand, India and Hungary led the unfavorable foreign currency impact.
BCS increased 6% reflecting double-digit growth in Mexico, the Philippines, India, Pakistan and China. In addition, BCS grew at a high double-digit rate in Venezuela reflecting the continued momentum by the joint venture as it increased its territories and capacity. These advances were partially offset by lower BCS in Japan due to the elimination of certain PepsiCo-owned brands by the new bottler Suntory. The PepsiCo-owned brands that continued to be sold by Suntory grew at a double-digit rate. Total concentrate shipments to franchisees increased at about the same rate as their BCS.
Reported operating results declined $75 million. Ongoing operating results declined $11 million. The decline primarily reflects higher losses in Russia due to our increased ownership as well as the impact of the economic crisis. Excluding the impact of Russia, operating results would have increased driven by volume gains (reported by most of our Business Units) and lower G&A expenses, due in part to savings from our 1996 restructuring. These gains were partially reduced by higher A&M, increased equity losses from unconsolidated affiliates and lower effective net pricing.
1997 vs. 1996
Net sales declined $157 million or 6%. Excluding foreign currency impact, net sales would have increased 1% driven by volume gains. The unfavorable foreign currency impact was led by Spain and Japan.
BCS increased 1%. Strong double-digit growth in China, the Philippines and India was reduced by double-digit declines in Brazil, Venezuela and South Africa. The decline in Venezuela reflects the impact of the loss of our bottler in August 1996 while the decline in South Africa results from the cessation of our joint venture operation. 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 $702 million. Ongoing operating results improved by $280 million, reflecting a small profit in 1997 compared to a loss in 1996. The improvement 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 absence 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.
