Pepsi 2007 Annual Report Download - page 53

PepsiCo Beverages North America
% Change
2007 2006 2005 2007 2006
Net revenue $10,230 $9,565 $9,146 7 5
Operating profit $2,188 $2,055 $2,037 6 1
2007
BCS volume was fl at due to a 3% decline
in CSDs, entirely offset by a 5% increase
in non-carbonated beverages. The decline
in the CSD portfolio refl ects a mid-single-
digit decline in trademark Pepsi offset
slightly by a low-single-digit increase
in trademark Sierra Mist. Trademark
Mountain Dew volume was fl at. Across
the brands, regular CSDs experienced a
mid-single-digit decline and diet CSDs
experienced a low-single-digit decline. The
non-carbonated portfolio performance
was driven by double-digit growth in
Lipton ready-to-drink teas, double-digit
growth in waters and enhanced waters
under the Aquafi na, Propel and SoBe Life
Water trademarks and low-single-digit
growth in Gatorade, partially offset by a
mid-single-digit decline in our juice and
juice drinks portfolio as a result of previous
price increases.
Net revenue grew 7% driven by effec-
tive net pricing, primarily refl ecting price
increases on Tropicana Pure Premium
and CSD concentrate and growth in
fi nished goods beverages. Acquisitions
contributed 2 percentage points to net
revenue growth.
Operating profi t increased 6% refl ect-
ing the net revenue growth, partially
offset by higher cost of sales, mainly due
to increased fruit costs, as well as higher
general and administrative costs. The
impact of restructuring actions taken in
the fourth quarter was fully offset by the
favorable impact of Canadian exchange
rates during the year. Operating profi t was
also positively impacted by the absence
of amortization expense related to a prior
acquisition, partially offset by the absence
of a $29 million favorable insurance
settlement, both recorded in 2006. The
impact of acquisitions reduced operating
profi t by less than 1 percentage point.
Smart Spot eligible products
represented over 70% of net revenue.
These products experienced mid-single-
digit net revenue growth, while the
balance of the portfolio grew in the
high-single-digit range.
2006
BCS volume grew 4%. The volume
increase was driven by a 14% increase
in non-carbonated beverages, partially
offset by a 2% decline in CSDs. The
non-carbonated portfolio performance
was driven by double-digit
growth in trademark Aquafi na,
Gatorade, Lipton ready-to-drink
teas, Tropicana juice drinks and
Propel. Tropicana Pure Premium
experienced a low-single-digit
decline in volume. The decline
in CSDs refl ects a low-single-digit decline
in trademark Pepsi, partially offset by a
mid-single-digit increase in trademark
Sierra Mist and a low-single-digit increase
in trademark Mountain Dew. Across the
brands, regular CSDs experienced a low-
single-digit decline and diet CSDs declined
slightly. The additional week in 2005 had
no signifi cant impact on volume growth
as bottler volume is reported based on a
calendar month.
Net revenue grew 5%. Positive mix
contributed to the revenue growth,
refl ecting the strength of non-carbonated
beverages. Price increases taken in 2006,
primarily on concentrate, Tropicana
Pure Premium and fountain, were offset
by overall higher trade spending. The
absence of the prior year’s additional
week reduced net revenue growth by
1 percentage point.
Operating profi t increased 1% primar-
ily refl ecting the net revenue growth
and lower advertising and marketing
expenses. Higher raw material costs,
primarily oranges, increased supply chain
costs in Gatorade and higher energy costs
substantially offset the operating profi t
increase. Total marketplace spending for
the year increased, refl ecting a shift from
advertising and marketing spending to
trade spending. Additionally, the impact
of more-favorable settlements of trade
spending accruals in 2005 was mostly
offset by a favorable insurance settlement
of $29 million in 2006. The absence of
the prior year’s additional week, which
reduced operating profi t growth by
1 percentage point, was fully offset
by the impact of charges taken in the
fourth quarter of 2005 to reduce costs
in our operations, principally through
headcount reductions.
Smart Spot eligible products represented
over 70% of net revenue. These products
experienced high-single-digit revenue
growth, while the balance of the portfolio
declined in the low-single-digit range.
Smart Spot eligible products represented over
70% of PBNA’s total revenue in both 2007
and 2006.
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