AP
PepsiCo 3Q Profit Rises 17 Percent
Thursday October 11, 6:56 pm ET
By Vinnee Tong, AP Business Writer
PepsiCo Reports 3rd-Quarter Profit Rises by 17 Percent on Strong International Results


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 one-time tax benefit.

Yet worries over rising commodity prices and consumer confidence going into next year led the company to sound a warning, and investors sent the share price down.

"With the shares up 8 percent in the last month and up 11 percent over the last three months, the strong results were not enough to maintain the shares' upward trajectory without further upward revisions today," Morgan Stanley analyst Bill Pecoriello told investors.

The company left its full-year earnings guidance of at least $3.35 a share in place.

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 $1.83, or 2.49 percent, to close at $71.77 Thursday after rising as high as $74.10 earlier in the session.

Rising commodity prices -- especially for corn, cooking oil and energy -- are a top concern for the Purchase, N.Y.-based company. Chief Executive Indra 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, PepsiCo North America CEO John Compton said.

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.

Overall operating profit grew 10 percent.

The fast-growing PepsiCo International unit reported operating profit grew 19 percent on revenue growth of 22 percent, which was boosted by favorable foreign currency comparisons, 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, and Nooyi said in an interview that the company was ready to spend more if there were deals worth doing. She said the company sought acquisitions to either fill holes in its product portfolio or build up a presence in countries where it's already operating.

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 joint 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.

The company reported weakness in two areas, as sales volume declined 2 percent for Quaker Foods North America and 1 percent for PepsiCo Beverages North America.

Analysts have closely watched for a recovery in Gatorade sales, but were disappointed by modest declines in the quarter.

Next year, Nooyi said the company expected mid-single digit volume growth and at least 10 percent earnings per share growth.