PepsiCo 3Q Profit Rises 17 Percent
(10-11) 10:33 PDT NEW YORK, (AP) —
PepsiCo Inc., the huge beverage and snack foods maker, said Thursday its third-quarter profit rose 17 percent on the strength of its international division and a tax benefit.
The owner of the world’s second biggest soft drink company and the Frito-Lay snacks maker earned $1.74 billion, or $1.06 per share, for the quarter ended Sept. 8, up from $1.49 billion, or 89 cents per share, a year earlier.
Revenue rose 11 percent to $10.17 billion from $9.13 billion last year.
Analysts polled by Thomson Financial had predicted earnings of 96 cents per share on revenue of $9.91 billion.
The earnings estimates typically exclude one-time items. The company said that excluding a $115 million tax benefit, it generated core earnings of 99 cents per share.
While that was higher than Wall Street’s estimate, its shares fell $1.68, or 2.3 percent, to $71.92 in afternoon trading Thursday after rising as high as $74.10 earlier in the session.
In addition to Pepsi beverages and Frito-Lay snacks, the company owns Gatorade and Tropicana drinks and the Quaker foods business. PepsiCo is the second biggest soft drink company after The Coca-Cola Co. in Atlanta.
The company reiterated its full-year earnings per share forecast of at least $3.35.
Overall operating profit grew 10 percent.
The fast-growing PepsiCo International unit reported operating profit grew 19 percent on revenue growth of 22 percent. Revenue was boosted 6 percentage points by favorable foreign currency comparisons and another 7 points by the effect of acquisitions and divestitures. The steepest growth this quarter was in Asia, as snacks grew 20 percent and beverages grew 12 percent.
So far this year, PepsiCo has spent $1 billion on acquisitions, Nooyi said. It saw good results from its buyout of Bluebird foods in New Zealand, and has landed two distribution deals that should help international growth. It has added 11 countries to its existing join venture with Lipton and extended its partnership with Starbucks into international markets, that will begin with distribution of frappucinos in China.
The company’s three other divisions reported single-digit growth in operating profit and revenue.
Frito-Lay North America had 7 percent operating profit growth on a 6 percent rise in revenue. PepsiCo Beverages North America operating profit grew 7 percent on a 3 percent rise in revenue. And Quaker Foods North America operating profit and revenue each grew 2 percent.
The company reported weakness in two areas, as sales volume declined 2 percent for Quaker and 1 percent for PepsiCo Beverages North America.
Sales of carbonated soft drinks in North America declined 3 percent while non-carbonated beverages grew 2 percent, led by Lipton ready-to-drink teas. Sales volumes of Gatorade, juice and juice drinks fell by a mid-single digit rate, while Aquafina water volume grew by a mid-single digit rate. Lipton ready-to-drink teas grew more than 20 percent.
Analysts have closely watched for a recovery in Gatorade sales, but were disappointed by modest declines in the quarter. Gatorade prices are about 2.5 percent higher over last year, and PepsiCo North America CEO John Compton said a rainy summer held demand down.
“Investors may pick at continuing volume softness at Gatorade, but management will likely ease concerns by talking optimistically about new products and better margins next year,” Goldman Sachs analyst Judy Hong told investors.
PepsiCo plans to launch a new low-calorie Gatorade called G2 in December.
At Frito-Lay, Doritos, Sunchips, multi-packs and dips grew by double-digits while Lay’s reported declines. The company’s new Flat Earth fruit and vegetable chips, meanwhile, have not generated the sales the company had hoped, Compton told analysts.
“All of the company’s operating divisions successfully navigated through an environment of higher input costs,” Chief Executive Indra Nooyi said in a statement.
Rising commodity prices Д especially for corn, cooking oil and energy Д are a top concern for the Purchase, N.Y.-based company. Nooyi said it was managing the effect of the higher costs in three ways: productivity, product mix and pricing.
“We just have to be very judicious in employing all the levers and remain flexible and agile,” she told analysts on a conference call.
Orange juice prices, which had been a problem for the company, are expected to come down, Compton said.
Of the overall results, Nooyi said, “Our third-quarter performance was very strong.”
For 2008, she said the company expected mid-single digit volume growth and at least 10 percent earnings per share growth.
