PepsiCo Reports Second-Quarter 2008 Results

- Strong Net Revenue Growth of 14 Percent

PURCHASE, N.Y., July 23 /PRNewswire-FirstCall/ -- PepsiCo, Inc.
(NYSE: PEP) today reported strong second-quarter operating results, with 14
percent net revenue and 12 percent operating profit growth. The Company
delivered earnings per share of $1.05. Excluding current and prior year
mark-to-market gains on commodity positions included in corporate unallocated
expenses, earnings per share would have totaled $1.03, up 11 percent.

Summary of PepsiCo Second-Quarter and Year-to-Date 2008 Results

Quarter Alone Year-to-Date
% Growth % Growth
Volume (Servings) 5 4.5
Revenue 14 14
Division Operating Profit 7 8
Operating Profit 12 11
Net Income 9 7
Earnings Per Share (EPS) 13 10
EPS ex-Mark-to-Market 11 10

PepsiCo Chairman and Chief Executive Officer, Indra Nooyi said, "The
strength and breadth of our global portfolio and geographic footprint
delivered another quarter of solid results. PepsiCo continued to drive growth
across its worldwide snacks and beverage businesses primarily through strong
product innovation, well-executed pricing actions and focus on expense control
and productivity." Nooyi continued, "We are proud of our first-half
performance and confident that we are well-positioned to deliver on our
outlook amidst a challenging macroeconomic environment."

Summary of Division Reported Q2 and YTD 2008 Results
Q2 % Growth Year-to-Date % Growth
Div. Div.
Operating Operating
Volume Revenue Profit Volume Revenue Profit
PAF 2 16 13 3 15 10
FLNA 2 8 8 2 8 6
QFNA 2 4 4 1 6 5.5
LAF 4 41 38 5.5 39 33

PAB -1 1 -7 -1 3 -1
PI 10/13* 25 18 10/13* 25 20
UKEU 8/20* 24 19 8/22* 24 19
MEAA 13/10* 25 16 14/10* 27 22

Total PepsiCo 4/5* 14 7 4/4* 14 8

*snacks/beverages

The results at PepsiCo Americas Foods (PAF) reflected solid top- and
bottom-line performance across all segments of the business in spite of
difficult macroeconomic conditions and rapidly escalating commodity costs.
Frito-Lay North America (FLNA). Our strong brands enabled 2 percent
volume growth even as high-single-digit net price increases were realized
from weight-outs and visual pricing to offset commodity inflation. FLNA
revenue growth of 8 percent was broad based, and operating profit grew 8
percent, driven by net revenue growth and productivity, partially offset
by higher costs for cooking oil, energy and fuel.

Volume growth was driven by double-digit growth in trademark Cheetos,
Ruffles, Quaker Chewy Granola and SunChips. Innovation was the key for
both Cheetos (e.g. Cracker Trax) and SunChips, which introduced new
flavors and was supported by the 'Made From the Sun' marketing campaign.
Weight-outs and a promotional shift to help manage potato supply
constraints led to a high-single-digit volume decrease in trademark Lay's;
but revenues were up high-single-digits. While pricing actions also
contributed to a mid-single-digit volume decrease in trademark Doritos,
revenues were up low-single digits. Single serve packages continued to
provide volume growth.

At Quaker Foods North America (QFNA), volume grew 2 percent, reflecting an
increase in Quaker Oatmeal, grits and Rice-A-Roni. Revenue and operating
profit grew 4 percent.

At the end of the second quarter, flooding in Cedar Rapids, Iowa, shut
down our major Quaker manufacturing facility. The Company expects to be
back to full production levels by mid-August, but we are experiencing
supply disruptions, and many Quaker products have been on allocation. We
expect insurance to cover asset damage and business interruption exposures
in the second half of the year.

At Latin America Foods (LAF) organic revenue and profit increased 10
percent and 21 percent, respectively, despite higher commodity costs.
Revenue growth was driven by broad based pricing actions at our key
businesses of Sabritas and Gamesa. At Sabritas unit volumes grew
mid-single digits; kilo volume declined by low-single digits as expected,
largely due to weight-outs. Also consistent with expectations, Gamesa
experienced double-digit net revenue growth due to favorable pricing
actions; its volume was essentially flat in the quarter lapping
double-digit growth in the prior year. In total, LAF volume grew 4
percent, benefiting from the Lucky brands acquisition in Brazil in the
fourth quarter of 2007.

PepsiCo Americas Beverages (PAB). In North America, the economic slowdown
continues to pressure the liquid refreshment beverage category with a decline
across convenience channels and a reduction in the growth of unflavored water.
In this environment, PAB volume decreased 1 percent during the quarter, driven
by a 3 percent decline in North America that was partially offset by a mid-
single-digit volume increase in Latin America. As a result, net revenue grew
1 percent and operating profit declined 7 percent.
The North American carbonated soft drink (CSD) portfolio gained market
share in measured channels. While showing sequential improvement, CSD volume
declined 2 percent due to category softness. Trademarks Mountain Dew and
Sierra Mist both grew low-single digits, partially offsetting a mid-single
digit decline in trademark Pepsi. Non-carbonated beverages (NCB) volume
declined 4 percent primarily due to a double-digit decline in unflavored
water. Volume growth in the Company's North American energy drinks
portfolio -- led by triple-digit volume growth for Amp Energy and more than 50
percent volume growth for SoBe Life Water -- was partially offset by
mid-single-digit declines in juice. Gatorade volume was up slightly for the
quarter.
The Company's Latin America Beverage business (LAB) continues to produce
strong top- and bottom-line growth. LAB's broad-based volume growth was
driven by mid-single-digit growth in the CSD portfolio and double-digit growth
in NCBs.
PepsiCo International (PI) continued to deliver strong performance while
lapping over 20 percent revenue growth and over 30 percent profit growth from
prior year. PI captured broad-based volume gains in snacks and beverages even
as the Company continued to implement pricing actions across its markets.
In the UK/Europe (UKEU) segment, broad-based snack volume growth of 8
percent was driven by double-digit growth in Russia and high-single-digit
growth in Poland. Additionally, Walkers in the United Kingdom grew at a
mid-single-digit rate. The acquisition of the Penelopa nuts and seeds
business in Bulgaria increased total snack volume by 1 point. UKEU
beverage volume grew 20 percent, primarily reflecting the Sandora
acquisition and the expansion of the Pepsi Lipton International joint
venture, which together contributed 17 percentage points to volume growth.
UKEU net revenue increased 24 percent, reflecting volume growth and
effective net pricing in major markets; foreign exchange contributed 11
percentage points and acquisitions 4 percentage points of growth.
Operating profit grew 19 percent driven by net revenue growth and
partially offset by increased commodity costs; foreign exchange added 9
percentage points and acquisitions 4 percentage points to growth.

Middle East/Africa/Asia (MEAA) segment snack volume grew 13 percent, led
by double-digit growth across the Middle East, India, South Africa and
China. In beverages, 10 percent volume growth in the MEAA segment
reflected broad-based gains led primarily by double-digit growth in the
Middle East, China and India. CSD volume grew at a high-single-digit rate
and NCBs grew at a double-digit rate. Net revenue for snacks and
beverages increased 25 percent, reflecting volume growth and effective net
pricing; foreign exchange contributed 6 percentage points to net revenue
growth. Operating profit grew 16 percent as a result of revenue growth,
partially offset by higher commodity costs; foreign exchange contributed 4
percentage points to growth.

Commodity mark-to-market valuation gains contributed to EPS growth.
For the quarter, corporate unallocated expenses decreased $71 million
compared to last year, primarily due to increased mark-to-market gains on
commodity hedges ($61 million this quarter compared with $13 million in the
second quarter last year). Excluding this net $48 million mark-to-market
valuation change, corporate unallocated costs would have decreased $23 million
compared to last year, driven by lower employee-related costs, which were
partially offset by continued investment in our business transformation
initiative and higher investments in research and development. Net interest
expense increased $21 million. For the quarter, the reported tax rate was
26.7 percent versus 26.5 percent in the previous year.
For the Company in total, foreign exchange contributed 4 percentage points
to revenue growth and 3 percentage points to operating profit growth.
Acquisitions accounted for 3 percentage points to revenue growth and 1
percentage point to operating profit growth.
2008 GUIDANCE
The Company expects full-year 2008 performance of three to five percent
volume growth, low-double-digit net revenue growth (including acquisitions and
foreign exchange) and EPS of at least $3.72 excluding the impact of any mark-
to-market gains/losses. The Company is not able to provide guidance on the
2008 projected EPS growth including the impact of the mark-to-market gains or
losses on commodity hedges due to the unpredictability of future changes in
commodity prices.
Cash provided by operating activities is expected to be approximately $7.6
billion and capital spending about $2.7 billion. In 2008, the Company intends
to repurchase at least $5.3 billion of its shares, subject to market
conditions. This represents an increase of at least $1 billion from its
previously announced intention to spend $4.3 billion in share repurchases in
2008. As of the end of the second quarter, the Company spent $2.9 billion
repurchasing its shares in 2008.
About PepsiCo
PepsiCo is one of the world's largest food and beverage companies, with
2007 annual revenues of more than $39 billion. The Company employs
approximately 185,000 people worldwide, and its products are sold in
approximately 200 countries. Its principal businesses include: Frito-Lay
snacks, Pepsi-Cola beverages, Gatorade sports drinks, Tropicana juices and
Quaker foods. The PepsiCo portfolio includes 18 brands that generate $1
billion or more each in annual retail sales. PepsiCo's commitment to
sustainable growth, defined as Performance with Purpose, is focused on
generating healthy financial returns while giving back to communities the
Company serves. This includes meeting consumer needs for a spectrum of
convenient foods and beverages, reducing the Company's impact on the
environment through water, energy and packaging initiatives, and supporting
its employees through a diverse and inclusive culture that recruits and
retains world-class talent. PepsiCo is listed on the Dow Jones Sustainability
North America Index and the Dow Jones Sustainability World Index. For more
information, please visit www.pepsico.com.
Cautionary Statement
This release contains statements concerning PepsiCo's expectations for
future performance, including our 2008 guidance. These "forward-looking
statements" are based on currently available information, operating plans and
projections about future events and trends. They inherently involve risks and
uncertainties that could cause actual results to differ materially from those
predicted in such forward-looking statements. Such risks and uncertainties
include, but are not limited to: changes in demand for our products, as a
result of shifts in consumer preferences or otherwise; our ability to maintain
our reputation; our ability to build and sustain our information technology
infrastructure, successfully implement our business process transformation
initiative or outsource certain functions effectively; fluctuations in the
cost and availability of raw materials; our ability to compete effectively;
disruption of our supply chain; trade consolidation, the loss of any key
customer, or failure to maintain good relationships with our bottling
partners; changes in the legal or regulatory environment; our ability to hire
or retain key employees; unfavorable economic, environmental or political
conditions in the countries where we operate; and market risks arising from
changes in commodity prices, foreign exchange rates and interest rates. For
additional information on these and other factors that could cause our actual
results to materially differ from those set forth herein, please see our
filings with the Securities and Exchange Commission, including our most recent
annual report on Form 10-K and subsequent reports on Forms 10-Q and 8-K.
Investors are cautioned not to place undue reliance on any such forward-
looking statements, which speak only as of the date they are made. PepsiCo
undertakes no obligation to update any forward-looking statements, whether as
a result of new information, future events or otherwise.
Miscellaneous Disclosures
Conference Call. At 11 a.m. (Eastern Time) today, the Company will host a
conference call with investors to discuss second-quarter 2008 results and the
outlook for the full-year 2008. For details, visit the Company's website at
www.pepsico.com, under "Financial Press Releases" in the "Investors" section.
Reconciliation. In discussing financial results and guidance, the Company
may refer to certain non-GAAP measures. Reconciliations of any such non-GAAP
measures to the most directly comparable financial measures in accordance with
GAAP can be found under "PepsiCo Financial Press Releases" on the Company's
website in the "Investors" section at www.pepsico.com.
Bottler Volume. Volume for products sold by PepsiCo's bottlers is
reported by PepsiCo on a monthly basis, with the second quarter comprising
April and May for North America, and March, April and May for our bottlers
outside of North America.
Bottler Case Sales (BCS). BCS represents physical beverage volume shipped
to retailers and independent distributors from both PepsiCo and our bottlers.
Concentrate Shipment Equivalents (CSE). CSE represents PepsiCo's physical
beverage volume shipments to bottlers, retailers and independent distributors.
"Effective net pricing" refers to the combined impact of mix and price.
"Net pricing" refers to the combined impact of list price changes, discounts
and allowances. "Pricing" refers to the impact of list price changes.
Mark-to-market gain or loss. The change in market value for financial
instruments, such as commodity contracts, that we purchase to mitigate the
volatility in costs of energy and raw materials that we consume. The market
value is determined based on average prices on national exchanges and recently
reported transactions in the marketplace.
Organic revenue and/or profit growth. Growth excluding the impact of
foreign exchange and acquisition/divestiture activity.
Division Operating Profit. The aggregation of the operating profit for
each of our reportable segments, which excludes the impact of corporate
unallocated expenses.

PepsiCo, Inc. and Subsidiaries
Condensed Consolidated Statement of Income
(in millions except per share amounts, unaudited)

12 Weeks Ended 24 Weeks Ended
6/14/08 6/16/07 6/14/08 6/16/07

Net Revenue $10,945 $9,607 $19,278 $16,957

Costs and Expenses
Cost of sales 5,078 4,342 8,912 7,627
Selling, general and administrative
expenses 3,664 3,295 6,598 5,930
Amortization of intangible assets 18 11 30 22

Operating Profit 2,185 1,959 3,738 3,378

Bottling Equity Income 168 173 238 247
Interest Expense (74) (54) (132) (96)
Interest Income 38 39 39 61

Income before Income Taxes 2,317 2,117 3,883 3,590

Provision for Income Taxes 618 560 1,036 937

Net Income $1,699 $1,557 $2,847 $2,653

Diluted
Net Income Per Common Share $1.05 $0.94 $1.76 $1.59
Average Shares Outstanding 1,612 1,665 1,622 1,669

PepsiCo, Inc. and Subsidiaries
Supplemental Financial Information
(in millions, unaudited)

12 Weeks Ended 24 Weeks Ended
6/14/08 6/16/07 6/14/08 6/16/07
Net Revenue

Frito-Lay North America $2,950 $2,723 $5,680 $5,276
Quaker Foods North America 406 390 901 853
Latin America Foods 1,523 1,079 2,494 1,789
PepsiCo Americas Foods 4,879 4,192 9,075 7,918

PepsiCo Americas Beverages 2,880 2,855 5,240 5,075

United Kingdom & Europe 1,727 1,396 2,638 2,136
Middle East, Africa & Asia 1,459 1,164 2,325 1,828
PepsiCo International 3,186 2,560 4,963 3,964

Total Net Revenue $10,945 $9,607 $19,278 $16,957

Operating Profit

Frito-Lay North America $735 $682 $1,368 $1,292
Quaker Foods North America 122 117 288 273
Latin America Foods 254 183 421 316
PepsiCo Americas Foods 1,111 982 2,077 1,881

PepsiCo Americas Beverages 681 729 1,185 1,202

United Kingdom & Europe 262 220 364 306
Middle East, Africa & Asia 233 201 372 306
PepsiCo International 495 421 736 612

Division Operating Profit 2,287 2,132 3,998 3,695

Corporate (102) (173) (260) (317)

Total Operating Profit $2,185 $1,959 $3,738 $3,378

PepsiCo, Inc. and Subsidiaries
Condensed Consolidated Statement of Cash Flows
(in millions, unaudited)

24 Weeks Ended
6/14/08 6/16/07
Operating Activities
Net income $2,847 $2,653
Depreciation and amortization 678 608
Stock-based compensation expense 112 123
Excess tax benefits from share-based payment
arrangements (65) (86)
Pension and retiree medical plan contributions (86) (116)
Pension and retiree medical plan expenses 211 240
Bottling equity income, net of dividends (196) (207)
Deferred income taxes and other tax charges
and credits 222 64
Change in accounts and notes receivable (1,102) (852)
Change in inventories (602) (526)
Change in prepaid expenses and other current
assets (219) (69)
Change in accounts payable and other current
liabilities 125 (28)
Change in income taxes payable 427 369
Other, net (159) (155)
Net Cash Provided by Operating Activities 2,193 2,018

Investing Activities
Capital spending (896) (743)
Sales of property, plant and equipment 65 15
Acquisitions and investments in noncontrolled
affiliates (262) (853)
Cash proceeds from sale of The Pepsi Bottling
Group (PBG) and PepsiAmericas, Inc. (PAS) stock 200 192
Short-term investments, net 1,255 326
Net Cash Provided by/(Used for) Investing Activities 362 (1,063)

Financing Activities
Proceeds from issuances of long-term debt 1,733 1,005
Payments of long-term debt (437) (534)
Short-term borrowings, net 705 266
Cash dividends paid (1,209) (989)
Share repurchases - common (2,904) (1,964)
Share repurchases - preferred (3) (4)
Proceeds from exercises of stock options 339 485
Excess tax benefits from share-based payment
arrangements 65 86
Net Cash Used for Financing Activities (1,711) (1,649)

Effect of Exchange Rate Changes on Cash and Cash 14 41
Equivalents
Net Increase/(Decrease) in Cash and Cash Equivalents 858 (653)
Cash and Cash Equivalents - Beginning of year 910 1,651
Cash and Cash Equivalents - End of period $1,768 $998

PepsiCo, Inc. and Subsidiaries
Condensed Consolidated Balance Sheet
(in millions)

6/14/08 12/29/07
Assets (unaudited)
Current Assets
Cash and cash equivalents $1,768 $910
Short-term investments 305 1,571

Accounts and notes receivable, net 5,617 4,389

Inventories
Raw materials 1,275 1,056
Work-in-process 331 157
Finished goods 1,329 1,077
2,935 2,290

Prepaid expenses and other current assets 1,026 991
Total Current Assets 11,651 10,151

Property, plant and equipment, net 11,600 11,228
Amortizable intangible assets, net 847 796

Goodwill 5,511 5,169
Other nonamortizable intangible assets 1,375 1,248
Nonamortizable Intangible Assets 6,886 6,417

Investments in noncontrolled affiliates 4,519 4,354
Other assets 1,276 1,682
Total Assets $36,779 $34,628

Liabilities and Shareholders' Equity
Current Liabilities
Accounts payable and other current liabilities $7,986 $7,602
Income taxes payable 353 151
Total Current Liabilities 8,339 7,753

Long-term debt obligations 6,053 4,203
Other liabilities 4,982 4,792
Deferred income taxes 752 646
Total Liabilities 20,126 17,394

Commitments and Contingencies

Preferred stock, no par value 41 41
Repurchased preferred stock (135) (132)

Common Shareholders' Equity
Common stock 30 30
Capital in excess of par value 345 450
Retained earnings 29,669 28,184
Accumulated other comprehensive loss (473) (952)
29,571 27,712
Less: Repurchased common stock (12,824) (10,387)
Total Common Shareholders' Equity 16,747 17,325
Total Liabilities and Shareholders'
Equity $36,779 $34,628

PepsiCo, Inc. and Subsidiaries
Supplemental Share and Stock-Based Compensation Data
(in millions, except dollar amounts, and unaudited)

12 Weeks Ended 24 Weeks Ended
6/14/08 6/16/07 6/14/08 6/16/07

Beginning Net Shares Outstanding 1,591 1,632 1,605 1,639
Options Exercised/Restricted Stock
Units Converted 3 6 10 14
Shares Repurchased (22) (17) (43) (32)
Ending Net Shares Outstanding 1,572 1,621 1,572 1,621

Weighted Average Basic 1,582 1,628 1,591 1,632
Dilutive Securities:
Options 25 31 27 31
Restricted Stock Units 4 4 3 4
ESOP Convertible Preferred
Stock/Other 1 2 1 2
Weighted Average Diluted 1,612 1,665 1,622 1,669

Average Share Price for the Period $69.07 $66.32 $70.27 $65.15
Growth Versus Prior Year 4% 13% 8% 11%

Options Outstanding 111 125 113 129
Options in the Money 111 125 113 123
Dilutive Shares from Options 25 31 27 31
Dilutive Shares from Options as a % of
Options in 23% 25% 24% 25%
the Money

Average Exercise Price of Options in
the Money $49.98 $46.49 $49.94 $45.47

Restricted Stock Units Outstanding 7 8 7 8
Dilutive Shares from Restricted Stock
Units 4 4 3 4

Average Intrinsic Value of Restricted
Stock Units $63.04 $58.46 $63.04 $58.44
Outstanding*

* Weighted-average intrinsic value at grant date

Reconciliation of GAAP and Non-GAAP Information
(unaudited)

In the 12 and 24 weeks ended June 14, 2008, we recognized $61 million and
$57 million, respectively, of mark-to-market net gains on commodity hedges in
corporate unallocated expenses. In the 12 and 24 weeks ended June 16, 2007,
we recognized $13 million and $30 million, respectively, of mark-to-market net
gains on commodity hedges in corporate unallocated expenses. We centrally
manage commodity derivatives on behalf of our divisions. Certain of these
commodity derivatives do not qualify for hedge accounting treatment and are
marked to market with the resulting gains and losses recognized in corporate
unallocated expenses. These gains and losses are subsequently reflected in
division results when the divisions take delivery of the underlying commodity.
We are not able to predict our 2008 projected diluted EPS growth including the
impact of the mark-to-market gains or losses on commodity hedges due to the
unpredictability of future changes in commodity prices, and we therefore are
unable to provide a reconciliation of our 2008 projected diluted EPS including
such impact.
The financial measures listed below are not measures defined by generally
accepted accounting principles (GAAP). However, we believe investors should
consider these measures as they are more indicative of our ongoing performance
and how management evaluates our operational results and trends.
Specifically, investors should consider the following with respect to our
results:
- Our 2008 and 2007 division operating profit;
- Our 2008 division operating profit growth;
- Our 2008 Latin America Foods (LAF) revenue growth and operating profit
growth without the impact of M&A activity and foreign currency; and
- Our 2008 diluted EPS and EPS growth excluding the impact of mark-to-
market net gains on commodity hedges recognized in corporate unallocated
expenses.

Operating Profit Growth Reconciliation

12 Weeks 24 Weeks
Ended Ended
6/14/08 6/14/08
Division Operating Profit Growth 7% 8%
Impact of Corporate Unallocated 4 2.5
Total Operating Profit Growth 12%* 11%*
* Does not sum due to rounding.

LAF Revenue Growth and Operating Profit Growth Reconciliation

12 Weeks
Ended
6/14/08
Revenue Growth 41%
Impact of M&A Activity (23)
Impact of Foreign Currency (8)
Revenue Growth Excluding above Items 10%

Operating Profit Growth 38%
Impact of M&A Activity (10)
Impact of Foreign Currency (7)
Operating Profit Growth Excluding above Items 21%

Diluted EPS Reconciliation

12 Weeks 12 Weeks
Ended Ended
6/14/08 6/16/07 Growth
Reported Diluted EPS $1.05 $0.94 13%
Mark-to-Market Net Gains on Commodity
Hedges (0.02) -
Diluted EPS Excluding above Item $1.03 $0.93* 11%

* Does not sum due to rounding.

24 Weeks 24 Weeks
Ended Ended
6/14/08 6/16/07 Growth
Reported Diluted EPS $1.76 $1.59 10%
Mark-to-Market Net Gains on Commodity
Hedges (0.02) (0.01)
Diluted EPS Excluding above Item $1.73* $1.58 10%

* Does not sum due to rounding.

SOURCE PepsiCo, Inc.

Media, Jenny Schiavone, Director, Financial Communications, +1-914-253-3941,
or Investors, Jane Nielsen or Mike Nathenson, VP Investor Relations,
+1-914-253-3035, all of PepsiCo, Inc.