Pepsi 2005 Annual Report Download - page 43

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In the discussions of net revenue
and operating profit below, effective
net pricing reflects the year-over-
year impact of discrete pricing
actions, sales incentive activities
and mix resulting from selling vary-
ing products in different package
sizes and in different countries.
Servings
Since our divisions each use different
measures of physical unit volume (i.e.,
kilos, pounds and case sales), a common
servings metric is necessary to reflect our
consolidated physical unit volume. Our
divisions’ physical volume measures are
converted into servings based on U.S. Food
and Drug Administration guidelines for
single-serving sizes of our products.
Total servings increased 7% in 2005
compared to 2004 as servings for bever-
ages worldwide grew over 7% and servings
for snacks worldwide grew 6%. All of our
divisions positively contributed to the total
servings growth. Total servings increased
6% in 2004 compared to 2003 as servings
for beverages worldwide grew 7% and serv-
ings for snacks worldwide grew over 5%.
2005
Net revenue increased 11% reflecting,
across all divisions, increased volume,
favorable effective net pricing, and net
favorable foreign currency movements.
The volume gains contributed 6 percentage
points, the effective net pricing contributed
3 percentage points and the net favorable
foreign currency movements contributed
over 1 percentage point. The 53rd week
contributed over 1 percentage point to
revenue growth and almost 1 percentage
point to volume growth.
Total operating profit increased 13%
and margin increased 0.2 percentage
points. Division operating profit increased
10% and margin decreased 0.2 percentage
points. The operating profit gains primarily
reflect leverage from the revenue growth,
partially offset by higher selling and distri-
bution (S&D) expenses and increased cost
of sales, largely due to higher raw materials,
energy, and S&D labor costs, as well as
higher advertising and marketing expenses.
In 2005, division operating profit margin
reflects our current year restructuring
actions, while total operating profit margin
benefited from a favorable comparison to
prior year restructuring and impairment
charges. The additional week in 2005
contributed over 1 percentage point to
both total and division operating profit
growth.
2004
Division net revenue increased 8%, prima-
rily due to strong volume gains across all
divisions, favorable product mix, primarily
at PBNA and PI, and net favorable foreign
currency movements. The volume gains
contributed over 4 percentage points, the
favorable mix contributed almost 2 percent-
age points, and the net favorable foreign
currency contributed almost 2 percentage
points to division net revenue growth.
Total operating profit increased 10%
and margin increased 0.3 percentage
points. Division operating profit increased
12% and division margin increased
0.5 percentage points. These gains reflect
leverage from the revenue growth, partially
offset by increased selling, general and
administrative expenses, primarily corpo-
rate unallocated expenses. In addition,
total operating profit growth reflects the
absence of merger-related costs in 2004.
Corporate Unallocated Expenses
Corporate unallocated expenses include
the costs of our corporate headquarters,
centrally managed initiatives such as our
BPT initiative, unallocated insurance and
benefit programs, foreign exchange trans-
action and certain commodity derivative
gains and losses, as well as profit-in-inven-
tory elimination adjustments for our
noncontrolled bottling affiliates and certain
other items.
In 2005, corporate unallocated
expenses increased 14%. This increase
primarily reflects higher costs associated
with our BPT initiative which contributed
7 percentage points, increased support
behind health and wellness and innovation
initiatives which contributed 5 percentage
points, and Corporate departmental
expenses and restructuring charges which
each contributed 2 percentage points to
the increase. In 2005, items of a non-
recurring nature included charges of
$55 million to conform our method of
accounting across all divisions, primarily
for warehouse and freight costs, and a
gain of $25 million in connection with the
Change
2005 2004 2003 2005 2004
Division net revenues $32,562 $29,261 $26,969 11% 8%
Divested businesses ––2
Total net revenue $32,562 $29,261 $26,971 11% 8%
Division operating profit $6,710 $6,098 $5,463 10% 12%
Corporate unallocated (788) (689) (502) 14% 38%
Merger-related costs –– (59)
Impairment and restructuring
charges –(150) (147)
Divested businesses ––26
Total operating profit $5,922 $5,259 $4,781 13% 10%
Division operating profit margin 20.6% 20.8% 20.3% (0.2) 0.5
Total operating profit margin 18.2% 18.0% 17.7% 0.2 0.3
Net Revenue and Operating Profit
Results of Continuing Operations — Consolidated Review