Insight - Pepsi Bottling Group sees healthier drinks trends
Pepsi Bottling Group has reported an uplift in consumer demand for soft drinks across Europe and Mexico in the third quarter, but conditions in the US are likely to remain challenging.
Soft drinks volumes are recovering in the company's markets in Europe and Mexico in a sign that consumer confidence is returning to the sector, Eric Foss, the bottler's chairman and CEO said at the group's third quarter results conference today (6 October).
"All of our countries saw improved volume rates in 3rd quarter versus frst half," said Foss, adding that Turkey and Greece rose in mid-single digits, while Spain recovered from double digit decline to mid-single digit decline.
Total European drinks volumes for the quarter slipped by 5%, while volumes slipped by 1% in Mexico for the three-month period.
PBG today reported a rise in net earnings for the three months to the end of September, despite a 5% slip in net sales and a 2% drop in volume sales, compared to the same period of 2008.
Foss' conference call comments offer encouragement to soft drinks producers in general.
Mark Swartzberg, analyst with Stifel Nicolaus, said today: "We consider PBG's results in Mexico and the portions of Europe in which it operates a favourable read into consumer conditions in developing and emerging markets and therefore a positive for multinationals such as The Coca-Cola Co and PepsiCo."
Russia remains PBG's biggest headache and Foss said macroeconomic pressures mean the soft drinks category continues to be down in double digits.
However, he reiterated PBG's commitment to the country. "I feel good about long-term potential of Russian market," he said, adding that local subsidiary, Lebedyansky Juice Group, performed above expectations and grew market share in the quarter.
In North America, conditions for the soft drinks industry remain "challenging" with "consumer spending still relatively weak in the market place", Foss said.
"We expect consumers to remain very value conscious in the forseeable future," he said, adding that building and extending a a "value" range of soft drinks will be a priority for the rest of 2009 and into 2010. In particular, the group is looking at offering a wider range of pack sizes.
Foss added that PBG is planning to trial its newly-acquired coconut water brand in California and Florida later this year, in order to assess the product's potential.
PBG, he said, has also made strong progress in energy drinks, with volume sales up 20% in the third quarter thanks to the acquisition of distribution rights to the Rockstar brand earlier this year. The deal has seen PBG shoot from number four player in the energy drinks market, in volume, to number two in the last 12 months, according to the company.
Profit growth in PBG's third quarter was largely driven by strong progress on cost savings, Foss said. The bottler expects to exceed its full-year cost savings target of US$265m, while full-year free cashflow is expected to rise by $100m on 2008, to $550m.
PBG continues to expect to become a wholly-owned subsidiary of PespiCo by early 2010 at the latest, said Foss, who, following completion of the deal, will lead a new PepsiCo bottling grop entitled PepsiCo Bottling North America.
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