Wednesday, November 19, 2008

Pepsi's "Strategy to Succeed"

Yesterday, in an 8-K filing, the Pepsi Bottling Group, unveiled its new multi year initiative called "Strategy to Succeed".

This plan takes aim at the company's customer service, streamlines processes, takes a stab at reducing costs and at the same time "rationalize(s)" the company's supply chain.

Behind this grand statement lies a plan, which like many other companies today, scales back operations, (Pepsi will close 4 facilities in the U.S., as well as 3 plants and about 30 distribution centers in Mexico, Pepsi will also eliminate about 700 routes over time in Mexico), lays off global employees (approximately 3,150 positions will be eliminated, including 750 positions in the U.S. and Canada, 200 in Europe and 2,200 in Mexico) and makes changes to retirement/pension plans.

The company hopes to make a pre-tax saving of around $140 to $170 million with this initiative. This does not include charges associated with changes in the pension plan.

The company is projecting a less than positive outlook for the coming period."Deteriorating macroeconomic conditions" in Mexico has also resulted in the Audit Committee of the Board of Directors approving a $412 million non-cash impairment charge. This primarily relates to certain intangible assets for their Electropura water business in Mexico.

In the 10-K filed by the company during the last quarter, there were several indicators of the company fighting a slump in the Mexico market including the physical case volume in Mexico decreasing by 9% for the quarter and 4% for the year-to-date period. These declines were partially offset by the growth in the the net price per case in this market.

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