UPDATE 4-PepsiCo Q4 profit meets Wall St view, sees buybacks

Fri Feb 13, 2009 11:40am EST

* Q4 adj EPS 88 cents matches Wall St view

* Says may buy back up to $2.5 bln in shares in '09

* Sees '09 revenue, EPS up mid-to-high single digit rate

* Shares up nearly 2 percent (Adds comments from conference call, analyst)

By Martinne Geller

NEW YORK, Feb 13 (Reuters) - PepsiCo Inc (PEP.N) reported a quarterly profit on Friday that met Wall Street expectations and said it may buy back up to $2.5 billion of its stock this year, sending shares up nearly 2 percent.

The world's No. 2 maker of soft drinks said net earnings tumbled 43 percent, hurt by a strong dollar and lower volume in its North American drinks business, but forecast revenue and earnings per share growth in 2009.

"Today if you're meeting expectations, you're almost exceeding expectations," said Hank Smith, chief investment officer of Haverford Investments, which owns shares of Pepsi and archrival Coca-Cola Co (KO.N).

"It's the reverse of the tech/telecom heyday when meeting expectations was a disappointment."

Smith said the share repurchase plan was also encouraging, given that many other companies are canceling buybacks.

The stronger U.S. dollar cut PepsiCo's revenue growth by 5.5 percentage points and earnings by 5 cents per share, said the company, which also makes Mountain Dew and Sierra Mist as well as Tropicana juice, Frito-Lay snacks and Quaker oatmeal.

The stronger dollar, which lowers the value of sales from abroad, is also expected to reduce 2009 full-year profit by 8 percentage points.

Coke, which has a much wider global footprint, forecast a bigger hit from currency in the current quarter and declined to estimate the impact for the full year. Coke posted a better-than-expected profit on Thursday [ID:nN12543370].

Morningstar analyst Philip Gorham said he was surprised by how weak Pepsi's domestic drink business was, but said he still favored Pepsi over Coke on the strength of its snack business.

"Although Coke has obviously won the cola wars, I think Pepsi's broader portfolio will allow it to weather the storm better in the short term," Gorham said.

PepsiCo profit fell to $719 million, or 46 cents per share, in the fourth quarter, from $1.26 billion, or 77 cents per share, a year ago. Excluding items, the company earned 88 cents per share, in line with analysts' average estimate, according to Reuters Estimates.

Revenue rose 3 percent to $12.73 billion.

WEAK TRENDS IN NORTH AMERICA

PepsiCo's overall fourth-quarter volume rose 2 percent in its snack business and 1 percent in its drinks business.

Volume rose 8 percent in its international snack business, fueled by double-digit growth in China and Russia. The international drink business gained 14 percent, helped by Pepsi's recent acquisition of Russia's biggest juice maker, Lebedyansky.

Trends in North America, where a recession has slammed the breaks on consumer spending, were much weaker.

Volume was flat in the snacks business, as the company had to raise prices on its Frito-Lay snacks to offset high costs of commodities like corn and cooking oil.

Pepsi said commodity costs rose 10 percent in 2008 and forecast that those increases will ease to 6 percent in 2009, as prices have come down and hedges roll off. For 2010 the company expects the costs to decline.

Volume in the drink business fell 6 percent, double the decline for Coke, which said Thursday it had gained market share in the quarter.

To appeal to cash-strapped consumers, Pepsi said it plans to add 20 percent more product into large bags of Tostitos, Fritos, Cheetos and Doritos sold in the region during the second quarter, without increasing the price.

Last year, the company removed some product from the bags without lowering prices as a way to make up for higher costs.

Pepsi expects revenue and operating earnings to grow at a mid-to-high single digit rate in 2009, excluding the impact of currency exchange rates.

The first half of the year and the current first quarter in particular will present the most difficult comparisons, Pepsi said, due to higher commodity costs and currency rates.

Given current market conditions, Pepsi said it does not anticipate selling shares of its anchor bottlers Pepsi Bottling Group Inc PBG.N or PepsiAmericas Inc PAS.N this year, though it expects to spend up to $2.5 billion buying back its own shares, subject to market conditions.

PepsiCo expects cost savings of more than $1.2 billion over the next three years, with $350 million to $400 million in 2009.

Shares rose 94 cents to $52.94 on the New York Stock Exchange. (Reporting by Martinne Geller; editing by Jeffrey Benkoe)

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