UPDATE 3-PepsiCo posts stronger-than-expected profit

Wed Jul 22, 2009 11:56am EDT

 * Q2 adj EPS $1.02 tops Wall Street view of $1.00
 * Reaffirms full-year outlook
 * No comment on pending offers for bottlers
 * Shares off slightly
 (Adds analysts' comments, updates share movement)
 By Ben Klayman
 CHICAGO, July 22 (Reuters) - PepsiCo Inc (PEP.N) posted a
bigger-than-expected quarterly profit, helped by growth in its
international business, but revenue fell short of expectations
as North American beverage sales declined, putting pressure on
the company to close deals to buy its two big U.S. bottlers.
 The maker of Pepsi-Cola and other sodas, Tropicana juices
and Gatorade sports drinks reaffirmed its full-year outlook.
 The company did not discuss its unsolicited takeover bids
for Pepsi Bottling Group Inc PBG.N and PepsiAmericas Inc
PAS.N, spurned as too low by both bottlers. CEO Indra Nooyi
also declined to talk about the pending offers on a conference
call with analysts.
 "These results really underscore the need to address the
weakness in the North American drinks unit," said Morningstar
analyst Phil Gorham. "I think that will probably lead to an
increased bid, sooner rather than later," for the bottling
 PepsiCo second-quarter net income slipped 2.3 percent to
$1.66 billion, or $1.06 a share, from $1.70 billion, or $1.05 a
share, a year earlier. The number of shares outstanding was
lower in the most recent quarter.
 Excluding one-time items, PepsiCo earned $1.02 a share, 2
cents better than the average Wall Street forecast according to
Reuters Estimates.
 UBS analyst Kaumil Gajrawala in a research note cited
better-than-expected profit margins in every division, as well
as strong trends in the international and Frito-Lay businesses.
He has a "buy" rating on the stock.
 J.P. Morgan analyst John Faucher pointed to a
lower-than-expected tax rate and expects Wall Street's 2009
profit estimates to rise due to an expected lower foreign
exchange hit and presumed better underlying growth.
 PepsiCo's net revenue fell 3 percent from a year ago to
$10.59 billion, below the $10.95 billion analysts had expected.
Revenue rose 9 percent in the North American food business and
12 percent in its international business, but fell 7 percent in
the North American drinks business.
 The results come a day after rival Coca-Cola Co (KO.N)
similarly reported a quarterly profit that topped estimates but
lighter-than-anticipated revenue. [ID:nN21195776]
 PepsiCo's overall revenue rose 5.5 percent on a constant
currency basis and its sales by volume rose 1 percent.
 The company said its outlook does not include the impact of
the proposed deals for the bottlers and that it would not
repurchase company stock until their resolution. The company
said it did not buy back shares in the first two quarters.
 Faucher, who has an "overweight" rating on the stock, said
the decision to not repurchase shares will add a little
pressure on PepsiCo to get the deals done.
 Analysts expect PepsiCo to raise its bids for the bottlers,
despite assurances from the company it would maintain a
"disciplined approach" and signaled it could walk away from the
offers. When asked by an analyst what the backup plan would be
if the deals do not occur, Nooyi said she would not comment.
 The company on Wednesday reaffirmed its full-year outlook,
which calls for net revenue and core earnings per share to rise
at a mid-to-high-single-digit percent rate on a constant
currency basis. Its 2008 core earnings were $3.68 a share.
 It said it now expects foreign exchange rates to hurt
full-year core earnings on a constant currency basis by roughly
6 percent, compared with 8 percent in the second quarter. That
new full-year expectation is down from the high single digits
it previously forecast, Chief Financial Officer Richard Goodman
 "We're being cautious," he said in a telephone interview,
about the weak economy. "There are obviously some green shoots
out there and that's good news, but consumers are also being
very cautious in their spending."
 Shares were off 25 cents at $56.15 in midday trading on the
New York Stock Exchange.
 (Additional reporting by Brad Dorfman; Editing by Brian Moss
and Matthew Lewis)