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Sponsored by Why invest alone? Try covesting for free. 15-day no cost, no obligation trial. Send us Feedback Pepsi Bottling Group (PBG)

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QUOTE AND NEWS 38.23 0.00 (0.00%) as of Mar 01, 4:00 PM EST

38.23 38.23 52 N/A Wk 38.23 Day Vol Avg Vol P/E 13.8 Mk 8.48 t B Cap Poland's PBG revises 2011 net profit down 22 pct Reuters 2 hrs ago Comment * Expects to obtain a bridging loan from banks by mid-May PBG opts for convertibles instead of rights issue Reuters Apr 3 Comment * PBG owners approved convertible bonds, scrapped rights issue PBG to complete bond issue, asset sales by mid 2013 Reuters Apr 3 Comment PBG shareholders opt for bond issue to cut debt Reuters Apr 3 Comment PBG Networks Leverages clouDevice Virtual Desktop Devices to Enable Secure K-12 Cloud Usage N/ A

Cloud Computing Jan 19 Comment Interphase Corporation (NASDAQ: INPH) announced today that its clouDevice desktop virtualization portfolio is now available from PBG Networks, a systems integration firm specializing in virtualization. PBG Networks has... PBG sees 2011 net around goal,2012 flat on low margins Reuters Jan 19 Comment Polish builder PBG backed out of plans to raise its 2011 net profit goal of 200 million zlotys ($59 mln), hinting it may end 2012 with a similar reading, as low margins cap the effect of rising revenues, PBG deputy chief said on Thursday. Polish PBG sees order backlog rising to PLN 9 bln Reuters Dec 29 Comment Polish builder PBG sees its order backlog rising by around half to over 9 billion zlotys ($2.64 billion) in the first quarter of 2012, as it integrates newly bought Rafako and eyes energy contracts, PBG's deputy CEO said. Moody's asgns PBG B2 rating; stable outlook Reuters Dec 22 Comment PBG S.A. (PBG) * Moody's assigns PBG B2 rating; stable outlook Polish PBG calls tender for Rafako shares-bookrunner Reuters Nov 18 Comment

Polish builder PBG called on shareholders at boiler maker Rafako to sell 3.6 percent of their shares at 13.22 zlotys each, the bookrunner DM BZ WBK brokerage said on Friday. Poland's PBG says to raise 2011 net profit target Reuters Nov 18 Comment Polish blue chip builder PBG said it would raise its 2011 net profit target, as it plans to include its takeover of boiler maker Rafako plus other items, its Chief Executive Jerzy Wisniewski said on Friday. PBG beats expectations with surprise Q3 net rise Reuters Nov 14 Comment Polish builder PBG surprised with a 35-percent jump in its third-quarter net profit, boosted by a one-off subsidiary revaluation gain and higher than expected sales, the bluechip group said on Monday. Polish builder PBG surprises with Q3 profit jump Reuters Nov 14 Comment PBG buys control of Rafako in $146 mln deal Reuters Nov 9 Comment * PBG shares bounce back to trade almost at par (Adds more detail, share price) PBG says to pay 15 pct less for control of Rafako Reuters Nov 9 Comment Suggest other news sources for this topic RELATED WIKI ARTICLES

Pepsico (PEP) Coca-Cola Company (KO) Commodities Coca-Cola Enterprises (CCE) Coca-Cola Hellenic Bottling Company (CCH) more

WIKI ANALYSIS This company has recently been acquired or received a credible acquisition offer. TOP CONTRIBUTORS

Sean Hinton

Ashwak Hauter

Morgan Alcalay

The Pepsi Bottling Group (NYSE:PBG) is the largest manufacturer, seller, and distributor of Pepsi-Cola beverages in the world. Though it is technically an independent bottling company, PBG is partially owned by PepsiCo (NYSE:PEP), and Pepsi brands accounted for 94% of PBG's 2006 unit sales. Pepsi Bottling Group has been facing several challenges in recent years. PBG's largest operations are in its North American and Western European markets, which have recently been hit by declining consumption of carbonated soft drinks. Consumer preferences have been shifting away from carbonated soft drinks, which accounted for around two-thirds of PBG's 2006 units, to healthier alternatives. The prices of production inputs, especially aluminum and corn, have been rising as well, putting additional pressure on PBG's profits. Despite these difficulties, PBG has performed relatively well. The Pepsi brands are very well known and enjoy significant brand loyalty. PBG's international markets have seen steady growth, helping to offset the sluggish domestic market. Also, PBG's performance is inherently tied to that of PEP, providing PBG with a certain degree of security in the highly competitive non-alcoholic beverage market. On April 20, 2009, Pepsico (PEP) offered to acquire Pepsi Bottling Group in a stock and cash deal. Under the terms of the offer, Pepsi Bottling Group shareholders will receive $14.75 in cash and .283 Pepsico (PEP) shares per share of PBG.[1] Pepsi Bottling Group rejected the offer after

releasing higher than expected quarterly earnings. Pepsi Bottling Group enhanced its bargaining position through the $200 million purchase of Texas based Ab-Tex Beverage Ltd.[2]On August 4, 2009, Pepsico (PEP) made a sweetened $36.50/share offer, which Pepsi Bottling Group accepted. The deal is expected to close in late 2009 or early 2010, and should provide the combined companies with $300 million in savings by 2012.[3]. The spread between the acquisition price and Pepsi Bottling Group's current price represents the time value of money. History and Corporate Overview

PBG Revenue and Net Income[4] Pepsi Bottling Group was originally a division of PepsiCobut was spun off in 1999 to separate PEP's high-margin concentrate business from the capital-intensive bottling operations. Although they are two separate corporations, Pepsi still maintains a 41% ownership stake in PBG, ensuring a close business relationship.

PBG bottles, markets, and distributes non-alcoholic beverages, primarily the Pepsi trademark and other PEP brands. As a bottler, PBG purchases concentrated forms of its beverages from concentrate manufacturers. PBG then uses these concentrates to produce the finished beverages, which it then packages and distributes directly to retailers. PBG's largest concentrate provider by far is PepsiCo, and PBG is also the largest bottler of Pepsi products in the world, accounting for 60% of PepsiCo's domestic volume and about 40% of its global volume in 2006. As a result of this extremely close relationship, the two companies' performance is often highly correlated. The Pepsi Bottling Group's operations are concentrated in the U.S. and Canada, with these two markets accounting for 78% of PBG's 2006 net revenues. PBG is also present in the European and Mexican non-alcoholic beverage markets, which accounted for 12% and 10% of 2006 revenues, respectively. Annual income 2002 data, in millions $9,21 Net Sales 6 Gross $4,21 Profit 5 Operatin $898 g Income Operatin 9.74% 2003 2004 2005 2006 2007 2008

$10,26 $10,90 $11,88 $12,83 $13,59 $13,79 5 6 5 8 1 6 $5,050 $5,250 $5,632 $5,990 $6,221 $6,210 $956 $976 $1,023 $1,052 $1,071 $649

9.32% 8.94% 8.61% 8.19% $7.88% $4.7%

g Margin Quarterly Earnings 1Q2009 In the first quarter of 2009 Pepsi Bottling Group posted revenues of $2.5 billion, a 5% decrease from 1Q2008 figures; net income almost doubled to $58 million. [5] Revenue was negatively impacted by unfavorable foreign exchange fluctuations, while an increase in net pricing was canceled out by lower sales volumes.[6] The increase in net income is attributable to new efficiencies across all of PBG's segments, as well as the company's ability to maintain costs while raising prices, contributing to a higher operating margin.[7]

2Q2009 In the second quarter of 2009, Pepsi Bottling group posted revenues of $3.27 billion, a 7% decrease from 2Q2008 figures; net income increased 21% to $211 billion. [8] Revenue was negatively impacted by a 4% decrease in physical case sales as well as a 3% revenue per case decrease. The fall in revenue per case was entirely due to

unfavorable foreign currency translation; ignoring these exchange rate fluctuations, it would have grown by 5% during the quarter.[8] The increase in net income was entirely due to a favorable tax audit settlement with both the US and Canadian governments, resulting in a tax benefit of $54 million. Ignoring this benefit, net income would have fallen 10% to $157 million.[8] Products

Pepsi Bottling Group's 2006 revenues by product segment As a bottling company, the Pepsi Bottling Groups product line is determined by the offerings of its concentrate manufacturers. Currently, PBGs portfolio is composed primarily of PepsiCos products, though 6% of its 2006 revenues came from the sale of non-Pepsi beverages. Although PBGs products vary somewhat by region, many of its brands are similar across markets. The drinks produced by PBG fall into one of three general categories: carbonated soft drinks (CSD), non-carbonated soft drinks (non-CSD), and water.

Carbonated Soft Drinks Carbonated soft drinks are the most common of the Pepsi Bottling Groups offerings, accounting for 66% of the companys total sales in 2006. Some of PBGs notable brands of CSD include: Pepsi-Cola Sierra Mist Mountain Dew Non-carbonated Soft Drinks

Sales for all non-carbonated soft drinks totaled 15% of Pepsi Bottling Groups revenues in 2006. Some of PBGs prominent non-CSD offerings are:

Lipton iced tea Starbucks Frappucino coffee drinks Gatorade sports drinks SoBe Juices and Teas

Water Water is usually placed in its own category due to its clear distinction from other non-carbonated soft drinks. PBG produces two brands of water, Aquafina and Propel fitness water, which accounted for around a combined 13% of the company's 2006 revenues. Aquafina is the top-selling brand of bottled water in the U.S. and has seen significant growth since its introduction in 2007.

Relationship with PepsiCo Pepsi Bottling Group and PepsiCo have a very close professional relationship. PEP owns 41% of PBG's common stock and maintains around 47% of PBG's voting power. This close relationship with PepsiCo affects PBG in both positive and negative ways. Master Agreement Pepsi Bottling Group and PepsiCo are bound by a master bottling agreement that governs the conditions of their business relationship. In the agreement, PepsiCo grants exclusive rights to PBG to market, produce, and sell PepsiCo products in certain geographic regions. PepsiCo also acts as PBG's agent for purchasing the raw materials needed for manufacturing. In exchange, PBG is obligated to purchase all of its concentrates from PEP at a nonnegotiable price. PBG must also purchase all packaging and labeling materials from certain PEP-approved manufacturers. Change of Control Provision The master agreement also includes a provision that discourages any individual or company from obtaining a significant percentage of PBGs stock. If one entity comes to own 15% or more of PBGs shares, PEP can cancel the master agreement. This clause effectively prevents hostile takeover attempts, but it also helps ensure PBGs continued dependence on PEP. Benefits

The products licensed to Pepsi Bottling Group by PepsiCo are very well-known, established brands. PBG has the ability to set its own prices for its products. PEP depends on PBG to function. Without PBG, PEPs distribution network would be severely crippled, rendering it unable to deliver its products to consumers. This dependence ensures that PEP will guarantee PBGs continued viability as long as the Pepsi brands remain strong. PEP provides advertising assistance by running its own ad campaigns and giving PBG funds for its own advertising expenses. Drawbacks

As stipulated in the master agreement, PBG is obligated to purchase all its concentrates from PepsiCo. PEP sets the concentrate pricing at levels which maximize its own profits, even if at the expense of PBG's profits. The agreement limits PBG's products to current PEP offerings, diminishing PBG's control over its own product line. Every year, PBG has to present a three-year financial plan to PEP. If PEP disapproves the plan, the master agreement can be terminated. Consumer Preferences and Demand

Pepsi Bottling Groups carbonated soft drinks account for around 66% of its revenues, making it susceptible to changes in demand for CSD. Recently, rising public health concerns have negatively impacted demand for CSD, and consumers have begun to shift to healthier choices, particularly non-carbonated beverages. Many schools now ban the sale of soft drinks on their campuses. The Center for Science and Public Interest has proposed placing warning labels on beverages containing 13g or more of sugar, a move that would affect all nondiet, full-calorie drinks produced by the Pepsi Bottling Group. Within the CSD segment, consumers have been moving away from the sugared drinks, opting instead for diet beverages, which do not generally contain any sugar or calories. Commodity Cost Inflation

2006 aluminum prices, $/ton

2006 corn prices, $/bushel

2006 PET resin prices, /pound Pepsi Bottling Group's profits are vulnerable to rising costs of production inputs. PBG uses several raw materials to produce and package its beverages, all of which can impact production costs and profit margins. Some of the most significant production inputs are: Aluminum Aluminum is used to make cans for packaging and represents around 15% of PBG's total cost of goods sold. In 2006, average aluminum prices were up nearly 40% for the year.

Corn PBG uses high-fructose corn syrup, a corn derivative, to sweeten its non-diet, full-calorie drinks. High-fructose corn syrup accounts for 10% of PBG's cost of goods sold. In 2006, corn prices were up 79% over 2005. PBG, however, acquires its high-fructose corn syrup through PepsiCo's global procurement division, which can help negotiate lower prices.

PET resin PBG makes all of its plastic bottles from PET resin. Recently, plastic bottles have been more popular than

aluminum cans, with PET representing 20% of PBG's cost of goods sold. In 2006, PET prices rose to a high of around 88 cents per pound but have since been declining. Concentrates Concentrates and syrups form the base of all PBG's beverage products. PepsiCo has maintained a low concentrate cost increase of around 2% annually, helping to mitigate the impact of inflated commodity prices on PBG's production costs. In 2007, however, PEP plans to increase concentrate costs by 3.7%.

Competitors

U.S. non-alcoholic beverage market, by % share of volume Pepsi Bottling Groups main competitors are the Coca-Cola Company (NYSE:KO) and its bottling affiliates. The most important are KOs top three bottling companies: Coca-Cola Enterprises (NYSE:CCE), Coca Cola Femsa S.A.B. de C.V. (KOF), and Coca-Cola Hellenic Bottling Company S.A. (NYSE:CCH). In 2006, Pepsi had a 31.2% share by volume of the U.S. non-alcoholic beverage market, second to CocaCola's 42.9%. The third-largest company in the domestic

market is London-based Cadbury Schweppes (NYSE:CSG), which accounted for 17.6% of the 2006 U.S. market share. Declining demand and high cost pressures have taken their toll on the domestic non-alcoholic beverage market in recent years. Compared to KO's largest bottler CCE, however, PBG's operating margins have remained relatively high. Operating 2002 2003 2004 2005 2006 margins, annual Pepsi Bottling Group 9.74% 9.32% 8.94% 8.61% 8.19% Coca-Cola 8.49% 9.1% 7.89% 7.63% (7.55%) Enterprises

References PepsiCo Makes About-Face With $6 Billion Offer. 2. Pepsi Bottling to Buy Texas Bottler Amid PepsiCo Bid. 3. PepsiCo deals a welcome windfall for investors. 4. PBG 2008 10-K pg. 14 5. PBG 2009 10-Q 6. PBG 2009 10-Q 7. PBG 2009 10-Q
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 8.0 8.1 8.2 You must specify title = and url = when using {{cite web}}.. Categories: Acquired | Exclude From Rankings | Consumer Products | Food & Beverage | Manufacturing | Mature | Beverages Soft Drinks | Soft Drinks
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