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Executives

Sara Zawoyski - Vice President, Investor Relations

Robert C. Pohlad - Chairman and Chief Executive Officer

Alexander H. Ware - Executive Vice President and Chief Financial Officer

Kenneth E. Keiser - President and Chief Operating Officer

Analysts

Lauren Torres - HSBC

Lindsay Mann - Goldman Sachs

Marc Greenberg - Deutsche Bank

Mark Astrachan - Stifel Nicolaus

Damien Witkowski - Gabelli & Company

Ann Gurkin - Davenport & Company

Carlos Laboy - Credit Suisse

Celso Sanchez - Citigroup

PepsiAmericas, Inc. (PAS) Q4 2008 Earnings Call February 4, 2009 11:00 AM ET

Operator

Good day everyone and welcome to today's PepsiAmericas 2008 Earnings Call. Today's conference is being recorded.

And now for opening remarks and introductions, I would like to turn today's conference over to Ms. Sara Zawoyski,. Please go ahead ma'am.

Sara Zawoyski

Thank you, Lisa. Good morning and thank you for joining us today to discuss our 2008 result as well as our outlook for 2009. On this morning's call are Bob Pohlad, our Chairman and CEO; Ken Keiser, our President and COO; and Alex Ware, our CFO. Our call is being recorded and will be available for playback on our website at www.pepsiamericas.com.

Please note that throughout our call this morning, we will be presenting certain forward-looking statements of expected future performance, including expectations regarding anticipated earnings per share as well as other matters. These forward-looking statements reflect our expectations and are based on currently available data. However, actual results are subject to future risks and uncertainties, which could materially affect our performance. We undertake no obligation to update any such forward-looking statements and we wish to advise you that the risks and uncertainties that could affect our actual performance are set-forth in the cautionary statements found in our Annual Report on Form 10-K.

Our discussion this morning includes certain non-GAAP financial measures, specifically adjusting for special charges, certain non-comparable adjustment and discontinued operations in operating profits and EPS.

In addition, our discussion today of full year '08 result in our '09 outlook is based on a 52 week comparable basis and excludes the impact of acquisition. Acquisition impact reflects the non-comparable territories year-over-year which reflect Ukraine results for the third quarter of 08'. Reconciliations of these items to GAAP financial measures are included in our earnings release this morning, as well as on our website.

With that, let me turn the call over to Bob.

Robert C. Pohlad

Thank you, Sara. Good morning, everyone. Thanks for joining us and for your interest in PepsiAmericas. Our 2008 results illustrate our strength, a diverse geographic mix, a capable organization and the importance of strong brand. It also validates our strategy to generate sustainable and dependable cash flow from the U.S. and to manage and expand our business in Europe for growth. 2008 was also a year of growing challenges. Slowing global consumer demand, tightening credit markets, weakening macroeconomic conditions and unprecedented moves in commodities and currencies.

Amidst all this, PAS headlines read differently. Not because our business is some how insulated from this new economic landscape, but because our U.S. and European strategy continued to work. As did our global pricing strategies, cost discipline and cash flow emphasis. 2008 results were strong.

We executed the pricing and mix strategies to offset higher costs, with global pricing up 4.4% in local currency. We drove sustainable costs savings through ongoing productivity initiatives like CO3, keeping our global SD&A cost increase to 1.6% after excluding acquisitions and currency.

We achieved another record in adjusted EPS growth of 18% albeit for meaningful contributions from currency, but also due to a very effective of tax planning and benefit from our Sandora acquisition. And we generated 250 million in adjusted operating cash flow well ahead of our projections after reinvesting 250 million back into our business.

The fourth quarter however also illustrate the challenges that lay ahead; including a soft category and impact for ForEx. At a same time, Q4 demonstrates our ability to effectively manage within this environment. Our U.S. business in Q4 maintained its operating profit performance despite the macro-environment. Continued cost discipline and strong execution on our Q4 pricing plans helped to offset the impact of higher commodity costs and lower volume.

Revenue was down 1% in the quarter, as a result of volume, in line with expectations CSD [Carbonated Soft Drink] declines accelerated in the quarter to down 6% in part due to pricing but also because we left strong holiday promotions from a year ago. While we continue to see volume decreases in Aquafina and Lipton both G2 and SoBe Life Water grew in the quarter.

In addition, our energy brand continue to grow and outperform the category. And as expected, in economic downturn our Foodservice volume declines accelerated. Factories to restaurants driving 1.5 of the overall volume decline. Our Central European business posted its best quarterly operating profit growth of the year. Every market showed improvement over the prior year, despite the 10% negative ForEx impact on revenue.

Our pricing plans were well executed. We had a new focus on cost reduction and good volume performance in Poland, Romania and Ukraine. Excluding currency our revenue grew 8% inline with our expectations and the full year.

Volume grew 1% consistent with the last two quarters despite the slower GDP growth rates in the quarter. Poland's volume was up 6% with local currency revenue up 8% as we continue to grow ahead of the category, increase single-serve distribution and execute our pricing plans.

Romania volume was up 3% with local currency up double-digits. In Ukraine, local currency revenue grew 9% from strong pricing and mix, while total volume was down 1% due to continued difficulty in our export business.

In countries, Ukraine volume was up double-digits. I'll discuss Ukraine in more detail in just a moment, because it's an important market for us and faces the most difficult headwinds in 2009.

Our Caribbean business delivered Q4 operating profits like the prior year with continued economic and volume softness in Puerto Rico. We remain on track with the initiatives we laid out in Q3 to streamline our supply chain in each of the markets and continue to look for alternative strategies to better position ourselves in this region.

So as we bring 2008 to a close, PAS is well positioned; with the fundamentals, capability and financial strength to operate and grow within this new economic landscape. As a result, we begin 2009 with confident, but a pragmatic view of the challenges and the volatility we face. What Alex and I will do for the balance in this call is to provide you with a clear description of our key assumptions, our plans and how we think about 2009.

Excuse me; as saw in the release this morning, we are expecting earnings per share in the range of $1.83 to $1.90 in 2009, a decline of 3 to 6% from the adjusted $1.95 in 2009 -- in 2008 reflecting a negative impact of ForEx. We expect our underlying businesses to grow with worldwide top line growth of 4 to 5% excluding currency.

We expect continued discipline in our pricing architecture as well as the incremental impact of our innovation and expanding product portfolio like Crush in U.S., Water in Romania and local CSD's in Ukraine. In the U.S., we expect volume to decline 3 to 4% and pricing to increase in the 5 to 6% range to help offset higher costs.

Productivity programs and cost reduction should allow the operating profits to grow in the low single-digit range. In Europe, we expect volume to increase low single-digits despite the economic slowdown as we expand our product offerings and distribution points. Low teen pricing in local currency and increased productivity should drive good underlying growth for total CEE business.

ForEx however will cause our operating profit to decline over 30% based on recent exchange rates. The two biggest challenges that we face in 2009 are first, the consumer's reaction to the world economic environment and the depth and duration of the impact to the beverage category.

And second, the impact of currency volatility in Europe. This presents itself in two ways, transactional, which effects cost of goods putting pressure on profits and margins, and translational which is a conversion of our international profits to U.S. dollars and that flows through to earnings. Here's what we're doing to manage these and also to strengthen our position in the market place.

First, we'll continue effective revenue management based on our practice of using pricing to cover costs and protect margins. In the U.S., all '09 pricing is in place and in the mid single-digit range. This level covers our expected cost and is consistent with the pricing environment in our market.

In Europe, I'll separate my comments between Ukraine and the balance of our markets. In our markets other than Ukraine, the majority of our pricing is in place and is competitive. We got ahead of much of the currency cost of goods pressure and took price increases in the mid single-digit range.

In Ukraine, our approach is more sequential through the year, allowing us to adapt quickly as the market and currency evolves. Assuming ForEx rates stay at current levels, our plan doesn't fully cover transactional related cost pressures, which will reduce our international margins and profits. This is reflected in the outlook we provided today and Alex will discuss this in more detail in a moment.

In addition to pricing, our '09 plan depends on a greater focus on core brands, productivity and on value-oriented innovation in both the U.S. and in Central Europe.

First in the U.S., we have refreshed everything, a new approach to Pepsi, Mountain Dew and Sierra Mist. These brands represents 70% of our U.S. volume and the campaign is already resonating with consumers. The advertising is timely and exciting. The new graphics are current and look great in the market. I am just very enthusiastic about it and we expect to begin to see an impact as we go through the year.

Our innovation calendar is strong and starts quickly in Q1 with brands like Sierra Mist, Ruby Splash and Crush. Our tea portfolio was stronger Lipton Jug, Sparkling Green Tea and Tazo. We'll have new graphics, flavors and formulations in our hydration portfolio including Sobe Life Water and Propel. And we'll launch the new Aquafina bottle that supports our sustainability efforts and lowers our costs by further light weighting bottle 20%.

Second, productivity; it is ongoing and significant to our performance. I mentioned to you through each call because of its impact and its importance and it now includes our powered pre-sell cell roll out. In addition, we're installing GPS in our trucks. All of these save time, lower costs and sell cases.

In addition, we're taking steps to reduce costs. They include compensation actions that impact our corporate executives as opposed to our front line work force, as relative reduction in more discretionary spending all of which Alex will take you through in further detail.

And third, we're assessing our new price pack architecture pilot, where we are testing eight (ph) tin pack can configuration in place of the 12 pack. We now have the basis for a good test as the market is completely converted for both odds and more recently the competition with the retail pricing our potential in place across all the channels. Other tests with the eight pack are also underway in some markets, as we further differentiate packaging by channel to match consumer shopping behavior looking for the optimal volume with the best margin.

While still early how consumers respond overtime is key. In addition and more immediately we expect to capture more value oriented consumers through a greater emphasis on different packet sizes including the one leaders CSD and Lipton Jug as well as more value oriented promotional calendar. Our challenge is to think and act differently as we react to and even find opportunity in this environment.

In Central and Eastern Europe, GDP growth in our markets is slowing to a low single-digit range. We do however still effect GDP growth on average to be 4 to 5 points higher than the U.S. And our de-consumption rates in our biggest markets Ukraine, Poland and Romania remain at levels much below that of the U.S. And remember, the combined share of our self and Coke was less than 25% of the LRB in our market.

The opportunity we see in these markets is the same today as it was a year ago. It is to grow share and consolidate the market price, add new distribution and add new products because our competitives are pragmatic and often highly leveraged, we have the potential to gain even greater share.

As an example, while some are cutting back on advertising and marketing, we will continue our investments to build out our water and tea platform. As some are reducing selling resources we continue our feed on this initiative to drive new distribution and greater penetration in high margin channels.

We continue to invest in growth capacity including the new plant in Romania and CSD lines in Ukraine. And continue our progress on our global growth platform initiatives to design and build the structure, systems and capabilities required to support long-term growth.

Further, M&A will continue to be a part of our strategy, though we will be prudent and cautious with the opportunities. While each of our market is different, we anticipate LRB growth rate to slow due to the broader economic slowdown and a weaker consumer. Our plan includes base volume growth slowing modestly from '08 rates offset by new brand and package launching.

Again, we are taking specific actions in Central Europe to address these '09 challenges. First, we're putting a greater emphasis on value oriented packages, categories and promotions. For example, we're introducing the 1.5 meter package in some markets. Second, we're expanding our brand portfolio to the introduction of water brands in Romania and mainstream flavored CSDs in Ukraine.

And third, like the U.S. in each one of our markets there is a greater emphasis on productivity. We will not lose the savings from our '08 warehouse consolidation initiative. We're adding more localized accepted production in Romania and Ukraine and will streamline logistics en-routing to reflect the current market condition.

Historically, we've been very top line focused and will now appropriately concentrate also on margins and productivity. Our biggest '09 challenge is Ukraine. With more than a 35% devaluation of the currency against the dollar since October, this market is driving over 70% of the overall European profit decline in '09.

As a result we're expecting higher currency related transactional costs and a decline in our base business volume. Offsetting some of this pressure is first, pricing, a lever that all consumer brands are using and in these inflationary markets. Second, we're adding mainstream flavored CSDs in the summer. We expect this to contribute roughly 1 percentage point to our total CEE volume. And we will still add the Pepsi business in January 2010.

Third, the expanded product portfolio along with the fast growing snack business provides greater distribution opportunity. As we gain scale, we will look to expand our direct sales presence in Ukraine with a successful feed-on-the-street initiative.

And fourth, we will continue to address our difficult export business. The combination of the strong juice position, new products and our pricing will ease but not offset the significant challenges in Ukraine. The drop in the Ukraine grid will still hurt our profits and margins. As a result, we'll take all appropriate steps as we go through the year to limit the decline without jeopardizing our share or position with our consumer.

Our perspective and the opportunity in Ukraine go well beyond 2009, and we continue to have great confidence in this market. Across PAS our strategy is unchanged. With our domestic team's job to protect and grow share, minimize volume decline, drive productivity or generate strong cash flow. In CEE, it's their job to grow, to react to and manage '09 challenges but not to overreact. It is to build the business in Central Europe that compares to our U.S. business in share, sustainability and profitability.

We have an excellent under organization that understands the challenges in '09 and I am confident we'll take full advantage of all that is available. At the end of the day, it's the consumer's spending ability and currency volatility not the fundamental strength or potential of our markets in Europe or the stability of our U.S. markets that challenge us. Our EPS ranged more than past year is based on assumptions that are rapidly changing target.

So Alex is going to describe as fully as possible our rationale, approach and response to them. Alex?

Alexander H. Ware

Thanks Bob and good morning everyone. As Bob just took you through the U.S. and European results and expectations, I will focus my discussion on five specific topics; commodities, productivity, currency, calendarization and cash flow. In addition, I'll address some of the specific expectations for 2009. But first, let me touch on a few Q4 items and reconcile our performance versus our expectations.

Currency cost is a bit more in Q4 than expected, close to $0.07 all end. However, we were able to offset this headwind through strong pricing across all of our markets and better SD&A leverage. Resulting in our 52 week adjusted operating profits rising 10% in line with our expectations.

In our release this morning, we identified several items impacting full year comparability in our year-over-year performance. First, the 53rd week which performed better than expected due to very strong New Year's revenue, delivering an estimated $0.04. We also highlighted the impact of special charges and adjustments that negatively impacted EPS by $0.14. This includes charges associated with our Caribbean reset and various domestic initiatives together with an out of period adjustment.

In total, our adjusted EPS from continuing operations of $1.95 up 18 % to prior year is at the high end of our guided range of 192 to 196, an encouraging indicator of our capability to manage through these dynamic times.

On cash flow, we generated a strong 250 million on an adjusted operating basis, over delivering our estimates with more than 30 million due to the 53rd week and ForEx benefits.

During '08 we leveraged training, scorecards and implemented performance measures to focus our organization on cash flow. With inventory programs like CO3 providing the means. And we returned almost 90% of this cash or 220 million to shareholders through share repurchases and dividends.

Now let me turn to key items for 2009; beginning with input costs. Since our last call commodity prices have dropped substantially. In January, we took advantage of these reductions to provide further predictability to our '09 COGS lowering our earlier cost estimates. These actions bring our raw material coverage level to almost 80% up from roughly 65% in October. While the positions we have taken significantly fix our full year increase, some positions do not receive hedge accounting. As a result, we will recognize quarterly mark-to-market gains or losses. But they will have no impact on a full year basis.

We expect to isolate this quarterly P&L volatility on our financial statements, so that the underlying operating performance is transparent. With the benefit of these hedged positions, our full year currency neutral COGS per unit guidance is up 4 to5% on a rate basis with mix adding 1point.

ForEx will then reduce this growth by 5 points based on current estimates.

Now let me turn to manufacturing and SD&A costs. We have responded to the '09 top line challenges that Bob discussed by further ramping up our productivity initiatives. Our outlook includes over 40 million in both COGS and SD&A savings reflecting work in three areas; on going supply chain initiatives, performance optimization opportunities and global belt tightening programs, with each area roughly contributing equally. Not all of these savings are incremental to '09 as initiatives are ongoing and happen every year, supporting our ability to manage through in always changing marketplace.

First, in our supply chain, we continue to find more efficient ways to bring our products to the marketplace. This is particularly important in the U.S. to help offset the impact of softer volume. Our largest program CO3 which we've discussed before, should be complete in the U.S. by this summer with a roll out of power pre-sell. This capability will sell our local save our 1000 sales reps up to 10% of their day while optimizing the order potential and reducing out of stocks.

We are also taking CO3 global with a roll out of demand planning and forecasting in Romania and Ukraine to balance production scheduling and ensure better in-stock performance.

Next we are streamlining our inventory account and check-out process to save nearly half an hour per day for our 1800 drop drivers. In addition, we are consolidating warehouses optimizing routes and expanding our one touch program for shipping directly from plant to store.

We are also investing for future savings, as we will be piloting an automated case pick technology in Ohio that will significantly reduce labor costs and increase accuracy for order picking in the warehouse. The second bucket includes specific tactical actions to address current business challenges. These actions include the streamlining of production, selling and distribution in our Caribbean operations and the realignment of certain parts of our business to better match resources against opportunities, including the consolidation of the Ordeya (ph) business into our domestic sales and marketing organization.

These initiatives are tailored to ensure costs aligned with the current market conditions. The third bucket is for global belt tightening. In each and every market, we have increased our cost discipline and focus on low value added work and discretionary spending.

In addition, we have taken specific steps on compensation as Bob noted, like foregoing executive and senior management merit increases, delaying long term incentive awards and differing hiring of non-customer facing positions to give us the flexibility to manage through the short-term volatility.

Now moving to currencies; the risk of origin that has gripped the financial markets in the past several months has significantly impacted the currencies of all emerging markets. We have seen the currencies of our three largest markets significantly weaken against both the dollar and the euro. With over 32% of our operating profit in 2008 derived from Central Europe, this will have a meaningful adverse impact on 2009 as reflected in our release this morning.

Our guidance assumes exchange rates based on the current bank consensus outlook on Bloomberg, which is devalued materially since our last update. For example, since our Q3 call, the Ukraine Hryvnia now is down over 35% and the Romanian Leu is down about 13%. And while these significant swings in foreign exchange markets make it very difficult to forecast, we have a very clear strategy on how to manage the currency impacts for 2009.

Let me explain; first translational exposure, as a reminder, this exposure results from THE currency impact of converting our operating profits from local currency to dollars. This impact is largely specific to PepsiAmericas as we are one of the few beverage players in our countries with the dollars our reporting currency. It is not our practice to hedge this translational impact, and so our EPS guidance assumes all of the translational impact will carry through, estimated to be $0.20 at current consensus exchange rates.

Next is transactional exposure, which is not unique to PAS, but is an impact of virtually all beverage companies that source things like PET bottles, sugar and oil outside their home market. While we generate revenue predominantly in local currencies, just over half of our COGS related purchases are denominated in U.S. dollars and euros. So, as local revenue declines with currency, the foreign denominated cost of goods amounts do not change, pressuring our international margins and operating profits. We are managing these transactional currency pressures through multiple actions.

Most significantly, we are moving local currency pricing up. As Bob described, most of our pricing is already in place and is aligned with the competition virtually everywhere. Second, cost reductions specific to Europe are being deployed to ensure that our labor, marketplace and discretionary spending is appropriate.

And finally, hedges put in place in several markets last summer provide some mitigation. Despite these actions, we have assumed that not all of the transactional exposure will be offset, so negative impact to EPS of $0.07 is also included in our guidance. As Bob discussed, this currency impact will put pressure on our operating margins and profits. From the '08 CEE margins of almost 13% we would expect to see margin contraction of two to three points. This currency environment is not un-chartered territory.

Several of our leaders in Europe have managed through comparable economic cycles like the ruble crises of '98 and the commodity inflation spikes associated with the EU recession in '04. So our familiarity with these times and necessary actions is relevant.

As we turn to our guided range for 2009, let me remind you that these ranges are based on a comparable 52 week basis. Our guidance is built around the following plans; volume is expected to be down low single-digits worldwide with 3 to 4 % decline in the U.S. and about a 2% rise in Europe based on new product launches.

Worldwide local currency net selling price per unit is expected to be in the high-singles to cover the commodity and much of the currency inflation, offset by seven points of negative ForEx. U.S. pricing is expected to increase in the mid... by the mid single-digits.

As mentioned, we expect overall COGS per unit to be up slightly. In the U.S., we expect underlying rate increases of 4 to 5% with mix adding just over a point. These increases incorporate the COGS productivity save discussed earlier, working to offset commodity and overhead inflation.

We expect our SD&A to decrease in the 3 to 4% range with currency driving roughly five points. The underlying increase of 1 to 2% reflects only modest increases across all of our markets, as we look to offset inflationary healthcare, pension and benefit pressures and global growth investments in Europe with our greater focus on discretionary spending in consolidation programs.

In total, we expect operating profits to decline in the 5 to 6% range all driven by currency. On the items below the operating income line, we expect interest expense of a 110 million, currency and the resulting shift in country mix would drive some year-over-year un-favorability in our expected tax rate, off of the 2008, 30.5% rate, and we would expect '09 to be higher by roughly three points; all building to an EPS range of 183 to 190.

For 2008, we posted a 40 basis point improvement to our adjusted ROIC ending the year at 8.3% for 2009 due to the currency impacts we would expect to end the year at 8.1.

Our cash flow performance for 2008 was very strong at 250 million in part due to the impact of lower currencies and a 53rd week a year, the lower currencies at year end and the 53rd week. We will now enjoy these tailwinds in 2009, so our forecast is in the range of 180 to 200 million with capital spending of 275 million reflecting our continuing investments in Romania and Ukraine. We have a strong balance sheet and solid credit ratings with roughly 20% of our $2.2 billion debt portfolio at floating rates.

While we have ample liquidity, we may seek an opportunistic financing given positive trends in the debt markets. We have 150 million interim debt due in May. Additionally, we may expect to...we may elect to terminate our $150 million securitization program and refinance in the turn markets if conditions remain favorable.

Turning to calendarization, we expect Q1 to be the softest by far. Keep in mind however, that it is also our smallest quarter less than 10% of full year earnings. So fixed cost lead to wide performance variability. There are several discreet factors impacting Q1.

First, Easter volume is shifting back to Q2 driving roughly 2 points of volume out of Q1. Second, we are lapping our fast start in Europe with our most difficult lap of plus 10%. And clearly ForEx will be a drag on profits. So with all this moving parts, we see EPS for Q1 in the mid-teen range excluding any mark-to-market adjustments.

We believe our 2009 plans to be realistic and reflective of today's environment. Given all the currency volatility, we have moved to proactively address those things under our control. Globally, the majority of our pricing is in the marketplace. We have good visibility to costs by locking more of our raw material and fuel costs and we have already taken action on our labor cost and will closely monitor our savings programs.

So that's leads to two major variables which we will be responding to all year. Our consumer's reaction and the currency moves. And so we look forward to what surely will be another exciting year for PepsiAmericas.

And with that Lisa, we are ready to open the call up for questions.

Question-and-Answer Session

Operator

Thank you sir. The question-and-answer session will be conducted electronically. (Operator Instructions). We'll take our first question from Lauren Torres with HSBC.

Lauren Torres - HSBC

Good morning.

Alexander Ware

Good morning.

Robert Pohlad

Good morning, Lauren.

Lauren Torres - HSBC

I have a question on the pricing front, I know you mentioned that you already passed through pricing good acceptance, and I was just curious though as the year progresses and I know its hard to tell how things will progress, but from an affordability issue how are you thinking about consumers looking at the price increases you are taking what the potential push back could be, would there be roll back in prices, just curious as the consumer now is obviously well all aware have been pulling back on spend, I was just wondering if from a pricing perspective there was concern?

Kenneth Keiser

Lauren this is Ken. So clearly we -- as we just mentioned we have pricing kind of guided in the U.S. in a mid single-digit range and as you suggested that pricing is in the marketplace where we are consistent with what we've seen in the marketplace. Clearly as this pricing particular not only in 09' but over the past couple of year has put us in the top end of our consumer value ranges and obviously that's the reason why we are so interested in all the price pack.

Architectural price pack value or pricing that are all to in a marketplace; as we see the year unfolding, as we exit Q4, where our pricing was really at the very high end, where we think it will be in 2009, I would suspect as the year goes on we'll see a little bit more emphasis on the holidays and promotional value types of opportunities to help kind of create those big stock applications. So, as we sit here today I think we're comfortable with the pricing that's in the marketplace, but as you know these underlying commodity costs, our pressures are not unique to beverages, there we're seeing as across the broader CPG a category.

Lauren Torres - HSBC

And you mentioned that you took it both in the United States and in Europe these increases already?

Kenneth Keiser

That's correct.

Lauren Torres - HSBC

Okay. And Alex for you, I know you talked a little bit about costs here. I think I just missed your comments with respect to your exposure for this year, can you just repeat that please?

Alexander Ware

Sure Lauren, we are at this point our coverage globally is almost 80% of our portfolio and now as you know the open switch would be on PET which is generally as unhedgable so in that place we've got some flexibility. But the balance of our commodities are largely locked in for the year.

Lauren Torres - HSBC

All right, thank you.

Operator

Our next question comes from Kaumil Gajrawala with UBS. Please go ahead.

Unidentified Analyst

Good morning this is Thomas (ph) standing for Kaumil. I have a question about mix shift. Is how much of you guys seeing there consumer shift towards higher quantity packages versus towards lower priced options?

Alexander Ware

I am not sure if I quite understand your question. Can you try it again?

Unidentified Analyst

Yeah, just how much have you seen in terms of mix shift; how much are you... what are you seeing in terms of a shift towards larger package sizes versus trading down to lower price options?

Alexander Ware

Well within our take-home category, I don't think we're seeing any difference in the basic take-home package mix. What we did see however in the fourth quarter in particular, we did see a little movement in private label. Private label keep in mind is about 9% of the category across our markets, so it is lower developed than across the U.S. but that the insight was up or just over a point.

So we during these time periods you would expect a little bit of movement into the private label category, but beyond that I don't we're seeing any fundamental shifts. We trade down we're seeing as shopping trips are up, we are seeing consumers not stocking up at the same levels. So EDV everyday value becomes a little bit more important to the consumers, but that would be the only insight I could give you in terms of your question.

Unidentified Analyst

Okay. And are you guys seen any pressure to some what back behind some of the price increases that is taken?

Alexander Ware

No.

Unidentified Analyst

Thank you.

Operator

We'll take our next question from Lindsay Mann with Goldman Sachs.

Lindsay Mann - Goldman Sachs

Hey guys. How are you?

Kenneth Keiser

Good.

Lindsay Mann - Goldman Sachs

Okay. So I had a quick question on the currency outlook for next year, if I run through the different on line item impact that you highlighted, so 7% on sales, 5% on costs of goods and 5% on SD&A. I get to a total impact that's somewhere on $120 million which is obviously more than $0.27 Bob that you mentioned. So, am I thinking about that right is the difference between some of the productivity or the pricing increases and lower labor costs that you highlighted?

Robert Pohlad

That's correct Lindsay, we are looking at the $0.27 impact is the net, the net of the offsetting actions that we're taking so, heavy emphasis on the pricing which as we described has been matched across all of our markets, so we feel very good about the type that we're keeping pace with the inflation in all the markets as well as the impact of the productivity initiatives that we've got in Europe. So the combination of those are the offsets plus the hedges, are the offsets that we have to the gross number to bring it down to the $0.27 impact in our guidance.

Lindsay Mann - Goldman Sachs

Okay. So to guess from that gross 125 to the call it 50 million or $0.27, those are all these initiatives you have in place, or do you have very good visibility that you can easily close that $75 million gap?

Robert Pohlad

Well, as we said, and just to dimensionalize that for you about half of that gap is going to be addressed through pricing, and about a third is going to be addressed to productivity, we've got hedges contributing a portion and then we're not, we're effectively non-anticipating to cover all of that transactional exposure plus the $0.07 that we've got outstanding.

So to the extent in the marketplace, other competitors are trying to cover 100% of their exposure. We are not assuming to go that far, but expecting to be able to cover just the majority, but not all of that transactional exposure, the translational excuse me, transactional exposure.

And again we are comfortable with the acceptance in the marketplace and where we sit relative to the competition. So the pricing actions are, I think as Bob mentioned over 70% in the marketplace at this point and much of that is carry over from the pricing actions that we have already taken earlier in 2008.

Lindsay Mann - Goldman Sachs

Okay. And just to go back on Bob's comments. It sounds like in Europe you're looking for pricing in a mid-teens range. Is that what I heard?

Robert Pohlad

Low teens, correct.

Lindsay Mann - Goldman Sachs

Low teens right. And already I believe you said you had mid single-digit in place?

Alexander Ware

We have... so just to characterize that, we affectively are taking pricing in the mid-teens in our CEE markets ex-Ukraine. Ukraine having the most inflationary pressure our pricing there is starting in the mid-teens. We expect to be able to move that along sequentially as the year progresses in line with competition.

Lindsay Mann - Goldman Sachs

So if you plan to take mid-teens pricing sorry, you're not quite at a mid-teens rate yet, you still have incremental pricing to take for CEE as a whole?

Alexander Ware

Largely in place in all of the markets with exception of Ukraine.

Lindsay Mann - Goldman Sachs

Okay. And I guess...

Robert Pohlad

Lindsay just one correction if you will. Across CEE ex-Ukraine, the pricing is in mid single-digits not mid double-digits.

Lindsay Mann - Goldman Sachs

Okay. So across CEE...

Robert Pohlad

Ex-Ukraine.

Lindsay Mann - Goldman Sachs

You are taking mid single-digit pricing.

Robert Pohlad

Correct.

Lindsay Mann - Goldman Sachs

And in Ukraine you're taking...

Robert Pohlad

Double-digit pricing yes.

Alexander Ware

Its in Ukraine.

Lindsay Mann - Goldman Sachs

Okay. And I guess just sort of following on a more in common the issue of affordability as we see consumers under pressure. At what point do you get nervous that this sort of rate pricing even if it is a moment competition, that doesn't evolve into something that's a bit more competitive.

Alexander Ware

Well again that's one of the... obviously we're going to be watching very closely the fundamental volume of price trade-off, but keep in mind one aspect of this that we haven't talk about is that within the category in Central Europe, it is quite fragmented with again the bulk of it being very regional and these regional players are probably under much more pressure than even we are. So, we'd anticipate that there is going to be some consolidation and some shake out across the category.

With that being said, we are going to watch this very closely. The good news over the past two or three years, the consumers across these countries, their affordability and discretionary income has grown quite substantially, sort of sensitivity there we would have found in 2004 and 2005 during the EU changes, we think we're in a better position to navigate through that.

Lindsay Mann - Goldman Sachs

Okay. And then on the productivity side, you said that... you highlighted $40 million plus, but not all of that is incremental. How much do you expect would be incremental?

Robert Pohlad

Well they...all of that is embedded within the...within the cost targets that we laid out, so on the domestic side, we expect to be up there over 1% on our costs for the year, which in order to be able to achieve that goal, we've embedded those cost actions in.

Lindsay Mann - Goldman Sachs

How does the productivity saving flow through with respect to the divisions?

Robert Pohlad

You mean between the U.S. and Europe?

Lindsay Mann - Goldman Sachs

Yeah.

Robert Pohlad

It's roughly three quarters in the U.S. and one quarter in Europe.

Lindsay Mann - Goldman Sachs

Okay.

Robert Pohlad

Based on...based on what I recall, sort of this centrally directed cost savings. In addition, there are local initiatives that the... our team is undertaking to tailor their costs to the appropriate market conditions.

Lindsay Mann - Goldman Sachs

Okay. And then just lastly, did you guys buyback stock in the quarter?

Robert Pohlad

We did. We did, in December, we bought back $25 million worth of stock.

Lindsay Mann - Goldman Sachs

Okay. Thanks very much.

Robert Pohlad

You bet.

Operator

Our next question comes from Marc Greenberg with Deutsche Bank. Please go ahead.

Marc Greenberg - Deutsche Bank

Thanks. Good morning. Can... the cold drink business domestically has been weak for a while. Can you talk about the negative mix impact that that's having on your U.S. profit, and any kind of specific initiatives that you all are taking to get the cold drink business moving in the right direction?

Kenneth Keiser

Well, so the cold drink business that's when we think about the cold drink business, first of all we have to think about it in terms of channel. So across our regional channel so convenience in gas, drug mass and so forth. Our singles... our total singles volume was down a couple of points and where the real pressure of that is been driven is of course in the Foodservice channel where we were down double-digits and we would anticipate that that would be the case again in 2009.

So, as we look at 2009, as we have done historically, we're looking at the single-serve channel at least on a retail perspective again with a pretty robust set of innovation particularly our Mountain Dew which you know is a strength of our single-serve business.

Relative to the pricing that we are looking at in 2009, it's not as much of it is on the take home side, so we don't see any really big changes on the retail side. And we do have a pretty strong promotional calendar against our single-serve packages, i.e. 2 for 222 to make sure on a value basis that that were so offering and some pretty good value.

With that being said, the CNG channel particular, we know that its still under pressure, trips are down despite the falling of fuel prices, that channel is still under pressure. So the bottom line is single-serve still will be...it's still going to be a challenge.

Marc Greenberg - Deutsche Bank

What about any particular moves, you or the Pepsi system has taken to activate traffic specifically lower price points. I mean given the gross profit for case and the importance of profitability of single-serve to your over all U.S. mix. And you're talking about down double-digits in the couple of channels that's going to be blistering to your profit picture, what about activating that with pricing?

Kenneth Keiser

Well again across the single-serve challenge again we have again on the promotional side we have in innovation side we still have... we have strong activity. Clearly on the onside as you know we are on the take-home side particularly we are downsizing the pack rate on take-home. And again single-serve.... listen, we still are looking a different ounce combinations. We do believe the 16 ounce is a good ounce configuration. We just need to come up with a better strategy around the whole value of margin implications in order to really reactivate that as being a stronger part of our single-service strategy.

Marc Greenberg - Deutsche Bank

Okay. Just one last one for Alex, you mentioned pension expense, are you expecting to see a big bump up in contribution this year as a result of the market weakness and can you quantify it?

Alexander Ware

Good question Marc. We ended up... we funded about 4 million into our pension plan and in a way we expect to fund about 10 in '09 and would probably keep it at that level for the next few years. So we have some impacts but I think relatively speaking our pension and liabilities are in decent shape.

Marc Greenberg - Deutsche Bank

Thank you.

Operator

Our next question comes from Mark Astrachan with Stifel Nicolaus.

Mark Astrachan - Stifel Nicolaus

Good morning everyone.

Robert Pohlad

Hi Mark.

Mark Astrachan - Stifel Nicolaus

This question is on how to think about your U.S. business through 2009. Is it fair to think that as we think about the quarterly flow that you'll see the first and second quarter be weaker given what we saw on a normalized basis in the fourth quarter with improving trends in the second half of the year?

Robert Pohlad

Certainly we've got pressure points more in the front half than in the back half of the year. Mark, so we would expect to see things improving as we go across the year.

Mark Astrachan - Stifel Nicolaus

And in terms of the expectations built in there for channel mix and volume, how do you think about that as well?

Robert Pohlad

The channel assumptions are really pretty consistent with how we ended up 2008. We're looking at a large format channel to be kind of down in the low single-digits, the same as small format with our Foodservice channel being the softest of our channels, being down in kind of the mid to higher single-digit rates.

Mark Astrachan - Stifel Nicolaus

Great. And then on a volume basis, how should we think about that?

Robert Pohlad

Well again, we're guiding our total U.S. business to be down 4 to 5%, excuse me 3 to 4%. Our base business being down about 4 to 5 and we're adding at least a point with all the new innovation and new products like Crush, Tea, Muscle Milk and so forth.

Mark Astrachan - Stifel Nicolaus

Okay. And then switching over to currency, I know you'd mentioned this based on some sort of the recent prices in Bloomberg. Is there anything built in there in terms of added devaluation or recovery or is it just basically expectations at this point in time. And then we should think about what sort of changes if any happen based on what the movements are from here out?

Robert Pohlad

The anchor point I would offer is that the method we've used over the last several years has been to take the median of the consensus forecast that are on Bloomberg, so when you look at the exchange rates by country, they have got the bank estimates there and so we are using the quarterly consensus median of those estimates.

We think it's a more accurate reflector of despite... obviously its going to be moving with tremendous volatility and at forward rate soften our spot plus the interest rate differential. So the median forecast seems to us to be the most realistic view of where rates are going to be. So we've used the very recent Bloomberg median and that would be an anchor point for you to evaluate movements going forward.

Mark Astrachan - Stifel Nicolaus

Great. And then just finally on the acquisition outlook given what's going on in Central and Eastern Europe? Has there been any change, I know you had mentioned it before, but any change in terms of how you are thinking about potential acquisitions, the weakness out there, are there any anymore names that would be interesting? Is it more difficult to finance that, just any general thoughts there would be helpful.

Alexander Ware

Sure. You know, in general, we've got a proactive M&A strategy that is still intact. We've got our list of companies of interest that we continue to work on. And I think this environment is likely to become more of a buyers market than a sellers market going forward. So we're going to look to continue to be opportunistic and active, but as Bob said, prudent in our M&A approach going forward.

From a financing perspective, I think we've seen some favorable trends in the credit markets over the last several weeks. So we're hopeful that the dollars occurring and the ability to finance these transactions will not be an impediment.

Mark Astrachan - Stifel Nicolaus

Great. Thank you.

Operator

Our next question comes from Damien Witkowski with Gabelli & Company.

Damien Witkowski - Gabelli & Company

Good morning. Thanks for going through the various geographies, it's very helpful. Just a point of clarification on Central Europe. How should we think about, you talked about GDP growth, and I think you said in Q4, Poland and Romania, and actually even Ukraine if you ex out their exports continue to be positive. And are you still seeing that trend as we sit here, beginning of February?

Kenneth Keiser

Well Damien, this is Ken so as we as we look at our Europe... volume outlook, I think it's important to again understand the geographic interplay here that first of all, if you look what we call our big three, Poland, Romania and Ukraine, in fact as we look at 2009, we're actually seeing we're going to we're projecting that the growth rates in conjunction with GDPs will actually be lower than they what they were what our volume growth rates were in 2008.

And in fact, we expect kind of those base volume rates to be slightly down, what is happening on the positive side is, and Bob mentioned, many of these in his comments that there is a lot of portfolio activity going on from our CSD our mainstream CSD launch in Ukraine among many other countries where we're doing different portfolio additions.

The one thing that really is playing a positive in 2009 is as you recall Hungary for us, that we talked about a lot over the course of 2008, where we kind of went through this big kind of marketplace price reset, where in fact our volumes were down double-digits and in a couple of quarters actually had a three point impact across our entire CEE volume base. So as we lag that... market has stabilized, as we go into 2009, we kind of add that back to the kind of its slower growth rate is how we kind of come up with our 2% European growth rate.

Damien Witkowski - Gabelli & Company

Okay. But... you always focus on the big markets Poland, Romania and Ukraine, and obviously for a good reason, but the smaller ones like Hungary and others, I mean is there a distinctive difference between markets like Poland versus a smaller market like Latvia out there? In terms of just demand and what's happening in those particular economies?

Kenneth Keiser

Plus or minus, I mean they are all experiencing some of the macro headwinds, I would suppose the biggest variability would be the influence of currency on each of those markets, and in the case Czechoslovakia would be on the very low side of course to the extreme on Ukraine would be the very high side. So that's probably have more of a factor with some of the different levels of growth and challenges that we see in this market.

Damien Witkowski - Gabelli & Company

Okay. And then on Caribbean you talked about alternative strategies, I mean if any more guidance as to what we could possibly see out of Caribbean and then near future or over the next 12 months?

Robert Pohlad

No, we continue to look at that and where it just to matter to part (ph) where we can discuss on...

Damien Witkowski - Gabelli & Company

Fair enough, okay, fair enough. And just your cash flows, I mean you're finally buying buyback shares I think again. You bought 30 million I think in the entire quarter and obviously you said you still have M&A eventually (ph). How should we think about your priorities for cash flows in '09?

Robert Pohlad

Our priorities are consistent with the way they've been in the past Damien, so first focus will always be on capital spending to support future growth in our base business. Second will be sort of near end prudent acquisitions that help us achieve our strategic goals, so those are going to be the things we that we strive to do more and then with the once we sort of maxed out on those initiatives then we would drive to focus on share repurchase dividends and debt reduction in that order.

Damien Witkowski - Gabelli & Company

And just very quickly, in the U.S. any change in private label as... I mean is it becoming more of a competitive these days?

Kenneth Keiser

As I mentioned in the earlier question, on our private label is about nine share of our category, full year was up six-tenths it was up 1.4 in Q4 so it was a little bit an uplift, but overall it's not the factor that would change how we look at how we're looking at our volume pricing channel strategies in '09.

Damien Witkowski - Gabelli & Company

Thanks.

Operator

Our next question comes from Ann Gurkin with Davenport. Please go ahead.

Ann Gurkin - Davenport & Company

Hello.

Alexander Ware

Hi, Ann.

Ann Gurkin - Davenport & Company

Wanted to continue with use of cash flow and I guess liquidity, it seems like a number of consumer companies are pulling back right now, but a share repurchase or maybe a less aggressive in terms of looking for acquisitions, you all seem a little bit different, I just want to see if I am reading this correctly?

Alexander Ware

Yeah, Ann I would say the credit markets have not been a material weakness for PepsiAmericas, we've continued to fund normally, in fact taking the advantage of some of the lower CP rates that the markets offered over the last several months. So, we are optimistic about the credit not being an inhibitor to our growth plans going forward.

Ann Gurkin - Davenport & Company

The share repurchase could likely remain part of your strategy in 2009?

Alexander Ware

Yeah, and that's not a strategy but it's more of a default and if capital spending and M&A ideas are not available.

Ann Gurkin - Davenport & Company

Great. And then secondly there has also been growing discussion that gross and many of these faster growing markets, emerging markets will not return to prior levels which I'll say year ago were, will take longer to return to these prior growth levels and I was just curious to hear your thoughts kind of on that settlement?

Robert Pohlad

Well I think that's probably true and if you look at the last couple or three years, these markets were growing at your double-digit growth rates in the new world that we see that. But what we do see is we still do see is a portfolio of countries over there that will relative to the U.S. will probably have four, five, six points of the growth profile and so the growth rates will be lower. They still will be attractive and probably coming off in an environment where the margin structure of these other category will be even held there than it was before.

Ann Gurkin - Davenport & Company

Okay. And then last, any update on G2 any kind of update on how the performance is doing I guess the refresh of the brand is there or a re-launch or whatever you want to call it?

Robert Pohlad

Well I mean across all the hydration portfolio from G2, Propel. Sobe Life Water all those products are introduced in new graphics. They have new advertising platforms and of course we just lapped the introduction from December of a year ago and actually we were able to lap that. And so it would be really too early to tell you specifically how each of those products are reacting to their new positioning.

Ann Gurkin - Davenport & Company

Okay, that's great. Thank you.

Operator

Our next question comes from Carlos Laboy with Credit Suisse.

Carlos Laboy - Credit Suisse

Good morning.

Robert Pohlad

Good morning.

Alexander Ware

Good morning, Carlos.

Carlos Laboy - Credit Suisse

On Central Eastern Europe, could you update us on the level of third party distribution you are using there and how this crisis is impacting both the effectiveness and the viability of these third party distributors and are you concerned about that?

Robert Pohlad

Well as you know we do use, about half of our distribution is used to third party distributors, varies a little bit by country. But the round here that we have seen some... we have seen some pressure but across the network we do not see it as a risk to our go to market strategy. There is a variety and multitude of distributors across a many of these markets.

Over the past the couple of years through feed-on-the-street initiatives and so forth, we have extended our capability from basically controlling the bulk of the selling and so now we rely on these distributors only for delivery and warehousing.

And I would say next Carlos that as our scale has grown over the years, particularly in Ukraine where we have a big juice business, as you know, some pretty ambitious portfolio additions, we're actually starting to look at bringing some of that distribution back under our own structure.

Carlos Laboy - Credit Suisse

That's helpful. Thanks. And just a follow up on your answer to mark earlier, you mentioned that you've got innovation, you've got the 16 ounce bottle that's helping on the U.S., but you don't sound quite convinced that you have all the tools to optimize cold drink here. What's missing, Ken?

Kenneth Keiser

Well I mean I still think we're still trying to find the optimal package size that have the optimal price value margin structure that will give consumer value, that won't dilute our margins, and will not dilute and trade down the retailer margins. And there's a lot of combinations and thoughts and tests that are taking place, but again I think there's work to be done, and obviously we're very focused on it because we all understand the importance of single-serve and the bonder P&L, so sitting here today, and no I don't think we're convinced that what we see out there right now is the optimal solution.

Carlos Laboy - Credit Suisse

Thanks.

Operator

And we'll take our final question from Celso Sanchez, with Citi. Please go ahead.

Celso Sanchez - Citigroup

Hi, thanks. Good morning. Just a follow up on that last point, you said you didn't see packages out there of approximately 16 ounce specifically that convinces you that that's the solution in its current form. Is that how I can do with the business model, in other words would the shipments one of your competitors to the percentage of wholesale price model, would that help potentially address some of those profitability concerns with that perhaps encourage you to, through all of that package size or package sizes like that a little more aggressively.

Alexander Ware

Celso, good morning, its Alex. On this one I think the, clearly the, there are different value priorities between the concentrated and the bottling systems. We believe, we have done a very good job of aligning and making sure that we have tried to grow the pie for total. So I think the economic relationship that we have today, I think we have done a good job of making that work and to maximize that for all sides.

That being said, are there... is there an opportunity for us to explore other economic models that might institutionalize that alignment. We would explore and be looking to do that. But I think by and large the economics don't impede the relationship between the two and don't impede the nature of the innovation that they were looking for.

Now that being said, the 16 ounce and the margin structure on that package are not from our advantage point are not that compelling to that you saw. We there is a just a better alternative out there that is not in the market today.

Celso Sanchez - Citigroup

Both the package alternatives rather than an economical turn of this?

Alexander Ware

It may be a combination. It's probably a short-term, long-term in there.

Celso Sanchez - Citigroup

And I guess sticking with sort of the price pack concept, in essentially Europe, do you think you have enough packaging options now to address kind of the more difficult environment and really I guess most relevant to compete with other local players that might not have packaging options to offer the same sort of value on the size basis perhaps, as you might have or do you think that part of the to be developed slowly?

Kenneth Keiser

No I think we're actually we do have, within our, if you look at the multi-serve which the predominant multi-serve package it was there as PET. And so we have a flexibility to go all the way from 0.5 liter to 1 liter, to 1.5 liter to 2 liter to 2.5 liter which we do interplay that throughout our system. And so that is... that actually has been and it will a more important today to try to provide give the right type of the right type of value to the consumer landscape.

Celso Sanchez - Citigroup

And do you see that as something that competitors such as or going (ph) they don't really have the kind of more in a 1 or 2 packages?

Alexander Ware

That would absolutely be correct. They simply do not have the.... as many of them outsource probably outsource their production that you call packers and so forth, they would not have that flexibility.

Celso Sanchez - Citigroup

Are you... does that mean therefore you have become even more aggressive with your package offerings or will be doing matters that really just we've already had them and they should work them?

Alexander Ware

We have had them but we are particularly with 1.5 liter looking probably look little bit more ambitious of that as a way to again to enhance the type of value that you see in the category.

Celso Sanchez - Citigroup

Great. And then I guess within the U.S. just to make sure I understood a point, I think you said that the markets... you talked about pilots 8 and the 18s but I think you also said that markets completely converted for yourselves and your competitor. Can you help me understand the relationship there, on the one hand they are saying pilot on the other hand it sounds like its already out there, I'm just trying to understand what stage of progress you feel it?

Alexander Ware

Yes, we'll starting... actually starting in the fourth quarter of last year. We now have 'A' market, a significant market in the U.S. that all of our traditional 12 to 24 packages have been removed from the marketplace across all channels and converted with 8 and 18 pack and as recently as just the end of last year, the competitors followed with that same package architecture and so now the new price architecture is in place relative to everyday value and feature and is consistent across the competitive landscape.

So now that that's in place, we'll obviously will start to determine the volumes margin implications of that. This is a big change for the consumer on unlike other product categories since the whole value equation and visibility to our packages is much more visible than against other categories. And so we're going to monitor this very, very closely because it is a big change for the consumer. And what Bob mentioned across the balance of PepsiAmericas in certain channels, in certain markets like some small format we have already converted those channels from 12 pack up to 8 packages.

Celso Sanchez - Citigroup

So, I guess my early question that sounds encouraging that by the way you're even doing it for a quite lot of your competitor, it is not something that rather than still being cautious about you would have more encouragement to push more aggressively especially in the current environment?

Alexander Ware

Yeah, that would be correct particularly as we get visibility to the actual results in the market place, we would be more ambitious in how we would expand it.

Celso Sanchez - Citigroup

And this is kind of embedded in your assumptions already for price mix basis or not necessarily?

Alexander Ware

No.

Celso Sanchez - Citigroup

Its already upside?

Alexander Ware

Yes.

Robert Pohlad

I would still characterize this is a task, an expanding task that does not anywhere close to role out yet.

Celso Sanchez - Citigroup

All right. For me it's... sometimes I wonder, it seems like in your other markets, you have that as you pointed out in some of your essential and you're paying (ph) ones, the flexibility with a different offerings, I just wonder why the reluctance in the U.S. and it works elsewhere, I recognize there is economic differences and so forth?

Alexander Ware

Well, I think it's again the visibility and change in front of the consumer is very substantial relative to any changing from 2 liter, 2.5 liter to 1.5 liter is one thing, and remember while you are doing that those existing legacy packages are still in the marketplace. We were talking about removing a package that's been in the marketplace for decades and replacing it with another package that has, that has a lower tap rate. So it's a big change and we just need to be very careful. Cans are 60% of our business and we got to be very, very cautious and careful before we extend this.

Celso Sanchez - Citigroup

Great. Thank you very much.

Operator

And that concludes today's question and answer session. I would like to turn the conference back over to our speakers for any additional or closing remarks.

Robert Pohlad

We don't have any additional comments, just thank you for your interest in PepsiAmericas. We look forward to talking with you after the end of the first quarter.

Operator

Thank you. And that concludes today's teleconference. Thank you for your participation. Have a good day.

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