DBRS Assigns a Rating to PepsiCo Canada’s Short-Term Debt at R-1 (middle) and Confirms PepsiCo, Inc. ratings at AA (low) and R-1 (middle)

DBRS has confirmed PepsiCo, Inc. (PEP or the Company) at AA (low) for its senior unsecured debt and R-1 (middle) for commercial paper, and assigned a short-term debt rating of R-1(middle) to PepsiCo Canada ULC based on a guarantee from PEP.

Well-established brands and market positions, combined with innovative product development across divisions and geographies, continue to drive above-average growth and enhance diversification. Volume and revenue growth in Pepsi Co. International (outside the United States and Canada) continue to be disproportionately higher than the rest of the Company, steadily reducing reliance on the North American market. Moderate volume growth in North America beverages continues to be driven by strong growth in non-carbonated soft drinks (CSD) offset partially by declining CSDs, and is reflective of PEP’s strong presence in the high-growth water, juice and energy segments.

PEP has been successful at delivering strong top-line growth while maintaining margins within a rising cost environment. Rising cash flow has helped maintain the historically very strong financial profile as absolute net debt has remained fairly level. At the same time, net debt and financial leverage have remained relatively stable at PEP’s key bottling companies, most notably at the 42% owned Pepsi Bottling Group (PBG), where PEP guarantees $2.3 billion of debt.

DBRS expects PEP to continue with its trend of strong sales growth, driven particularly by solid volume gains in its international segment and non-CSDs in North America. The North American CSD market should remain challenged by intense competition and health and wellness trends. DBRS expects investment in international markets to increase further in the near to medium term, which should further enhance diversification and long-term growth potential.

DBRS also expects that PEP will use significantly more cash for dividends and share repurchases in 2007 and 2008; however, the Company’s financial profile should remain very strong, based on rising cash flow from operations.

Note:
All figures are in U.S. dollars unless otherwise noted.