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Two analysts and top management from ten sector firms examine the beverages sector in this special 46-page Beverages issue from The Wall Street Transcript, available at (212/952-7433) or http://www.twst.com/info/info504.htm.

TWST: Mark Swartzberg, have you been surprised by any of the company or stock performances in the group this past year, and to what extent have earnings been in line with your expectations for the past couple of quarters?

Mr. Swartzberg: The best performing stock from an end-of-year perspective was Anheuser-Busch, and it's not because calendar 2001 turned out any differently from an EPS perspective than the company or most of us on the Street thought at the beginning of the year. But as we arrived at the end of calendar 2001, we found a stock that performed extremely well and a bullish outlook that more and more investors bought into.

TWST: Mark Swartzberg, are there any other stocks that you would like to highlight?

Mr. Swartzberg: I would highlight only one, and tell you that Pepsi Bottling Group is attractive and is indeed one that we see material dollar upside to. The reason Pepsi Bottling Group (NYSE:PBG) is attractive is twofold: valuation and fundamentals. On valuation, I wouldn’t describe PBG as screamingly cheap, but it’s hardly expensive, trading at less than 8 times calendar 2002 EBITDA, and its multiple has been contracting modestly. From a fundamental standpoint, this is one of only three stocks in our universe that we think is at the front of a period of upward earnings revisions. And those revisions, we believe, would be a symptom of a larger, longer-term phenomenon, i.e., not only healthy returns but returns growing faster and sustainably faster than people generally expect. One of the main reasons for that, actually, is not even company-specific. It’s because we believe that the pricing atmosphere in North America for soft drink bottlers will be better in calendar 2002 than it was in calendar 2001. By better, I don’t mean an uptick in rates of realization, but I mean the risk of CCE being a price spoiler is materially abated as we start calendar 2002. And I mean, basically, a better pricing atmosphere, and greater confidence in a better pricing atmosphere translate into better economics and better absolute results for everybody. In addition, PBG has a big share advantage in the cold drink channel (vending and convenience & gas) and is ramping up product innovation. Both these factors play to PBG’s continued ability to drive mix in favor of high margin, relatively high-priced products.

TWST: Mark, how do you read investor sentiment surrounding the beverage stocks these days?

Mr. Swartzberg: That’s a great question. Let me answer that in two parts. The first would be broadly market-driven outlooks, and the second would be more sector-driven. Our sector outperformed in calendar 2001, in part, for reasons that have little to do with any individual company’s fundamentals. These are defensive stocks, and in a skittish market, which we remain in as we start calendar 2002; these are stocks that people feel, to a certain extent, that they can sleep at night owning. More sector-specific, investors continue to take notice of Pepsi’s greater beverage execution success in North America, and the beer industry’s broadly better outlook than many perceived, particularly during the first nine months of 2001.

This special issue includes:

1) Beverages Industry - In an in-depth (10,500 words) Analyst Roundtable, Marc Greenberg, Director at Deutsche Bank Alex. Brown, Inc. and Mark Swartzberg, Analyst covering the Beverage Industry at ABN AMRO, Inc., examine the outlook for the sector including stock performance in 2001, demographic trends and share specific stock recommendations.

2) CEO interviews (average 2,500 words). Top management of ten sector firms examine the outlook for their firm and the sector.