Fitch Affirms PepsiCo's IDRs at 'A/F1'; Outlook Stable

  Fitch Affirms PepsiCo's IDRs at 'A/F1'; Outlook Stable

Business Wire

CHICAGO -- November 16, 2012

Fitch Ratings has affirmed the ratings of PepsiCo, Inc. (PepsiCo), Pepsi-Cola
Metropolitan Bottling Company, Inc., and Bottling Group, LLC as follows:

PepsiCo (Parent)

--Long-term Issuer Default Rating (IDR) at 'A';

--Senior unsecured debt at 'A';

--Bank credit facilities at 'A';

--Short-term IDR at 'F1';

--CP program at 'F1'.

Pepsi-Cola Metropolitan Bottling Company, Inc. (Operating Company/Intermediate
Holding Co.)

--Long-term IDR at 'A';

--Guaranteed senior notes at 'A'.

Bottling Group, LLC (Operating Company)

--Long-term IDR at 'A';

--Guaranteed senior notes at 'A'.

The Rating Outlook is Stable. PepsiCo had approximately $27.9 billion of debt
at Sept. 8, 2012.

Rating Rationale:

PepsiCo's ratings reflect its substantial cash flow generation, significant
scale, product diversification, increasing exposure to faster growing emerging
markets, and position as the world's second largest food and beverage company.
Annual cash flow from operations and free cash flow (FCF) have averaged $7.5
billion and $2.1 billion, respectively since 2007.

PepsiCo's $66.5 billion of net revenue in 2011 was split 52% beverages/48%
food and 50% was generated outside of the United States with emerging or
developing markets representing about one-third of the total. Russia and
Mexico are PepsiCo's largest markets outside of North America with each
representing 7% of net sales in 2011. PepsiCo's portfolio consists of 22
brands; including Pepsi, Gatorade, Lay's, Doritos, Quaker, and Tropicana, with
more than $1 billion in annual retail sales that are typically No. 1 or No. 2
in their respective categories.

PepsiCo's financial strategy, which Fitch has viewed as aggressive given share
repurchase activity concurrent with acquisitions resulting in periodic
increases in leverage, is also factored into ratings. Investing in its
business, returning cash to shareholders, and maintaining credit ratings that
provide ready access to capital encompasses PepsiCo's financial strategy.
Share buybacks have averaged a net $2.5 billion per year since 2007 and
dividends have grown annually by 6% or more over the past five years to more
than $3 billion in 2012. PepsiCo anticipates dividends and share repurchases
will total more than $6 billion in 2012.

Operationally PepsiCo is focused on increasing brand support to grow market
share, expanding its emerging market presence, growing its nutrition business,
reducing overhead, and leveraging technology and processes across its
organization. As discussed below, PepsiCo has made noticeable progress on this
strategy. Fitch believes PepsiCo's strategic initiatives will help the company
to meet its long-term financial targets of mid-single-digit and 6% - 7%
constant currency net revenue and operating income growth, respectively, post
2012. Current year operating income is being impacted by an uptick in brand
investments and spending to support productivity efforts.

Incremental advertising and marketing spending will total $500 - $600 million
in 2012. Acquisitions and strategic alliances are expanding PepsiCo's emerging
markets presence while supporting its product goals in nutrition and
beverages. Examples include PepsiCo's 2011 purchase of Wimm-Bill-Dann - the
leading dairy and juice firm in Russia - for approximately $5.4 billion and
its 2012 agreement with China-based Tingyi Holding Corp. (Tingyi). Brand
building efforts appear to be paying off as consolidated volumes have been
flat while pricing has increased 5% for the year-to-date (YTD) period through
Sept. 8, 2012, as discussed below. Finally, the firm's multi-year productivity
initiatives are on track to deliver $1 billion plus of savings in 2012 and $3
billion by 2015.

Credit Statistics:

For the latest-twelve-month (LTM) period ended Sept. 8, 2012, total
debt-to-operating EBITDA was 2.2x, operating EBITDA-to-gross interest expense
was 14.5x, and funds from operations (FFO) adjusted leverage was 3.5x. FCF was
in line with PepsiCo's historical average at $2.2 billion. PepsiCo's leverage
is modestly higher than similarly rated food and beverage companies but
ratings are supported by, as mentioned previously, the company's substantial
and stable FCF, significant scale, diversification, and brand leadership.

Fitch expects total debt-to-operating EBITDA leverage to remain in the low
2.0x range during 2012 and 2013. PepsiCo's 2012 operating cash flow will be
negatively affected by an approximate $1.3 billion pension and retirement
medical plan contribution. Absent additional discretionary contributions,
PepsiCo's cash flow growth should improve in 2013 as benefits from its
strategic initiatives around brand support and productivity savings are
realized.

Recent Operating Performance:

For the YTD period ended Sept. 8, 2012, consolidated net revenue declined 2%
to $45.5 billion and operating profit is down 7% to $6.9 billion. Organic
revenue growth, which excludes a negative 3% impact from both currency and
divestitures, was 5% due mainly to pricing as volume was flat. Operating
profit includes $193 million of charges related to PepsiCo's productivity plan
and $137 million of charges related to the company's transaction with Tingyi.

Net effective pricing was positive across each division. Volume gains in AMEA
(Asia, Middle East and Africa) and Latin America Foods (LAF) were offset by
declines in PepsiCo Americas Beverages (PAB), Frito-Lay North America (FLNA),
and Quaker Foods North America (QFNA). Volumes were flat in Europe.

Fitch believes increased advertising and marketing spending in North America
is gaining traction as quarterly volume performance has improved at FLNA and
QFNA through 2012. LAF has remained strong due to good innovation and
increased distribution and AMEA stands to benefit from PepsiCo's alliance with
China-based Tingyi along with its growth efforts in India. Europe is
benefiting from PepsiCo's exposure to faster-growing Eastern European markets
such as Russia which is experiencing double-digit volume growth in snacks.
Although PAB continues to be work in progress, Fitch views PepsiCo's goal of
growing beverages profitably in North America positively.

Liquidity, Covenants, and Maturities:

PepsiCo maintains good liquidity. At Sept. 8, 2012, the firm had $5.7 billion
of cash and short-term investments, the majority of which is offshore, and
combined capacity of $5.85 billion under its 364-day and four-year revolving
credit facilities. PepsiCo's revolvers expire in June 2013 and June 2016,
respectively, and are not bound by financial covenants. Fitch recognizes that
repatriation of cash could result in incremental taxes but given PepsiCo's
financial flexibility believes PepsiCo would more likely use the cash to grow
in overseas markets.

Maturities of long-term debt at Dec. 31, 2011 included $2,353 million in 2012,
$2,841 million in 2013 and $3,335 million. At Sept. 8, 2012, $3,054 million of
PepsiCo's debt was classified as current. PepsiCo has issued more than $6
billion of new debt through Oct. 23, 2012. Net proceeds were used for general
corporate purposes, including the repayment of commercial paper and the
refinancing of current maturities of long-term debt. At Sept. 8, 2012, PepsiCo
had $900 million of commercial paper outstanding.

PepsiCo guarantees all of the senior notes of its bottling subsidiaries -
Pepsi-Cola Metropolitan Bottling Company (wholly owned by PepsiCo) and
Bottling Group, LLC (wholly owned by Pepsi-Cola Metropolitan Bottling
Company). While the notes of the bottling subsidiaries are structurally
superior to the notes issued by PepsiCo, Inc., Fitch has chosen not to make a
distinction in the ratings at the single-A level as default risk is very low.

WHAT COULD TRIGGER A RATING ACTION

Future developments that may, individually or collectively, lead to a positive
rating action include:

--Total debt-to-operating EBITDA below 2.0x and Fitch's belief that PepsiCo
would manage its balance sheet to sustain an 'A+' rating.

Future developments that may, individually or collectively, lead to a negative
rating action include:

--Significant debt-financed acquisitions or share repurchases and/or
deteriorating operating performance that causes total debt-to-operating EBITDA
to be sustained above the mid 2.0x level;

--Substantial and sustained declines in cash flow would also likely prompt
negative rating actions.

Additional information is available at 'www.fitchratings.com'. The ratings
above were unsolicited and have been provided by Fitch as a service to
investors.

Applicable Criteria and Related Research:

--'Corporate Rating Methodology' (Aug. 8, 2012);

-- 'Fitch Rates PepsiCo's GBP500MM Sr. Note Issuance 'A'; Outlook Stable'
(Oct. 23, 2012);

-- 'Fitch Rates PepsiCo's $2.5B Sr. Note Issuance 'A'; Outlook Stable' (Aug.
8, 2012)

Applicable Criteria and Related Research:

Corporate Rating Methodology

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=684460

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Contact:

Fitch Ratings
Primary Analyst:
Carla Norfleet Taylor, CFA, +1-312-368-3195
Director
Fitch, Inc.
70 W. Madison Street
Chicago, IL 60602
or
Secondary Analyst:
Wesley E. Moultrie II, CPA, +1-312-368-3186
Managing Director
or
Committee Chairperson:
David E. Peterson, +1-312-368-3177
Senior Director
or
Brian Bertsch, +1-212-908-0549
Media Relations, New York
brian.bertsch@fitchratings.com