Pepsi 2006 Annual Report Download - page 47

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 varying
products in different package sizes
and in different countries.
Servings
Since our divisions each use different
measures of physical unit volume (i.e.,
kilos, gallons, 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.
In 2006, total servings increased
5.5% over the prior year, as servings for
beverages worldwide grew over 6%
and servings for snacks worldwide grew
5%. All of our divisions positively con-
tributed to the total servings growth. In
2005, total servings increased 7% com-
pared to 2004, as servings for beverages
worldwide grew over 7% and servings
for snacks worldwide grew 6%.
Results of Continuing Operations — Consolidated Review
2006
Net revenue increased 8% primarily
reflecting higher volume and positive
effective net pricing across all divisions.
The volume gains and the effective net
pricing each contributed 3 percentage
points to net revenue growth. Acquisi-
tions contributed 1 percentage point
and foreign exchange contributed
almost 1 percentage point to net rev-
enue growth. The absence of the prior
year’s additional week reduced net rev-
enue by over 1 percentage point and
reduced volume growth by almost
1 percentage point.
Total operating profit increased 9%
and margin increased 0.1 percentage
points. The operating profit gains reflect
the net revenue growth, partially offset
by the impact of higher raw material
and energy costs across all divisions. The
absence of the prior year’s additional
week reduced operating profit growth
by over 1 percentage point.
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 percent-
age points, the effective net pricing
contributed 3 percentage points and
the net favorable foreign currency
movements contributed over 1 percent-
age 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. The operating profit gains pri-
marily reflect leverage from the revenue
growth, partially offset by higher sell-
ing and distribution (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. Total operat-
ing profit margin also benefited from a
favorable comparison to prior year
restructuring and impairment charges.
The additional week in 2005 contributed
over 1 percentage point to total operat-
ing profit growth.
Corporate Unallocated Expenses
Corporate unallocated expenses include
the costs of our corporate headquar-
ters, centrally-managed initiatives, such
as our BPT initiative in North America,
unallocated insurance and benefit pro-
grams, foreign exchange transaction
gains and losses, and certain commodity
derivative gains and losses, as well as
profit-in-inventory elimination adjust-
ments for our noncontrolled bottling
affiliates and certain other items.
In 2006, corporate unallocated
expenses decreased $55 million primar-
ily reflecting the absence of a
non-recurring charge of $55 million in
the prior year to conform our method
of accounting across all divisions, pri-
marily for warehouse and freight costs.
Higher costs associated with our BPT
initiative of $35 million, as well as the
unfavorable comparison to the prior
year’s $25 million gain in connection
with the settlement of a class action
Change
2006 2005 2004 2006 2005
Total net revenue $35,137 $32,562 $29,261 8% 11%
Operating profit
FLNA $2,615 $2,529 $2,389 3% 6%
PBNA 2,055 2,037 1,911 1% 7%
PI 1,948 1,607 1,323 21% 21%
QFNA 554 537 475 3% 13%
Corporate unallocated (733) (788) (689) (7)% 14%
Restructuring and
impairment charges –– (150)
Total operating profit $6,439 $5,922 $5,259 9% 13%
Total operating
profit margin 18.3% 18.2% 18.0% 0.1 0.2
Net Revenue and Operating Profit
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