A slide in full-year net income for Pepsi Bottling Group this week led to a drop in its full-year forecast as the strengthening US dollar continues to hurt overseas sales. Michelle Russell looks in-depth at the group’s performance.

Earnings excluding one-time items will fall to $2.15 to $2.25 per share in 2009, compared with $2.27 in 2008, the world’s second-largest soft drinks distributor said in a statement on Tuesday (10 February).

Reported net earnings slid to US$162m in 2008, down from US$532m the year before, with income damaged by restructuring and impairment charges totalling US$338m.

Despite this, the result was better than analyst expectations, according to a Thomson Financial survey.

The better-than-expected results helped push Pepsi Bottling Group (PBG) up as much as 3.8% in New York Stock Exchange composite trading. The shares, which fell 43% last year, rose 10 cents to $20.81 on Tuesday.

“The underlying growth rate appears better than expected,” JPMorgan analyst John Faucher wrote in a research note, adding that the full-year forecast was not a major surprise given the worldwide economic slowdown.

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Stifel analyst Mark Swartzberg said he expects the company to continue minimising profit and cash flow declines in spite of volume contractions through a combination of “cost savings, effective pricing, and abating input cost increases” in the second half of the year.

PBG chairman and CEO Eric Foss said he remained optimistic, despite expecting 2009 to be “another challenging year”.

Foss said: “There are a number of reasons to be optimistic about PBG’s ability to continue to perform well in the marketplace. We have a healthy balance sheet and ample liquidity.”

His buoyant tone permeated the delivery of the results, despite the fact that, in the last year, the company has seen a 4% decline in physical case volumes worldwide.

Fourth quarter volumes declined 7% in North America and Mexico and 6% in Europe as a result of the continued deceleration in consumer spending and the global economic slowdown.

Take into account the fact that currency translations are taking their toll and you can see why PBG is having trouble growing.

And let’s not forget that PBG said in November it would cut 3,150 jobs, or 4.6% of its workforce, to lower expenses as consumers buy fewer soft drinks in the global recession.

The move is expected to save the company US$70m this year and US$160m annually once completed.

PBG was not alone in reporting a profit drop this week, however.

On Wednesday, arch-rival Coca-Cola Enterprises (CCE) reported a net loss of US$4.4bn for 2008, despite a 4% increase in net revenue for the year.

A $7.6bn non-cash charge was the main reason for the full-year loss, the company said in a statement.

Excluding the write-down, Coca-Cola earned 64 cents per share, beating analysts’ estimates of 61 cents per share.

While CCE’s share price has risen 27.6% in the past three months, it is 46.2% lower than it was a year ago.

Results from CCE and PBG, then, point towards a challenging year ahead.

“PBG has a good portfolio behind it, but when one takes into account the weak consumer, it’s easy to understand why the company has a challenging fiscal year ahead of it,” said Jim Cramer, of BloggingStocks.

He added: “However, I’d rather own a PepsiCo or a Coca-Cola Co [share] instead of a bottler such as PBG or Coca-Cola Enterprises, since bottlers have a more complex business model. If you happen to believe that PBG is indeed a value, then I see no reason why you shouldn’t check out the syrup-concentrate sellers first.”

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