PepsiCo keeps 2012 view as turnaround progresses

Wed Jul 25, 2012 1:31pm EDT

Bottles of Pepsi cola are seen in a display at PepsiCo's 2010 Investor Meeting event in New York, March 22, 2010. REUTERS/Mike Segar

Bottles of Pepsi cola are seen in a display at PepsiCo's 2010 Investor Meeting event in New York, March 22, 2010.

Credit: Reuters/Mike Segar

(Reuters) - PepsiCo Inc (PEP.N) reported a higher-than-expected quarterly profit on Wednesday, helped by price increases, and stood by its full-year outlook as the company makes progress on its turnaround.

That the maker of Diet Pepsi, Frito-Lay snacks and Tropicana orange juice did not cut its outlook was viewed as a sign of strength at a time when many consumer products companies are suffering from a weak global economy.

"In a consumer group seeing negative second-half revisions, we consider this positive," said Stifel Nicolaus analyst Mark Swartzberg.

The results also signaled progress in PepsiCo's efforts to improve performance after its North American beverage business had lost market share to rival Coca-Cola (KO.N) and its stock price had languished.

"They're moving in the right direction," said portfolio manager Robert McIver of Jensen Investment Management, which owns nearly 3 million PepsiCo shares. "The fact that they were able to get some pricing increases in this environment is a testament to their strength."

The company's shares were up more than 1 percent in early afternoon trading.

One area of strength that PepsiCo highlighted was convenience stores and gas stations, where sales rose 8 percent, lifted by Mountain Dew and Gatorade. By contrast, Coke said last week that it was surprised to see no bump from easing gasoline prices at those stores, as it had expected.

PepsiCo said its second-quarter net income had fallen to $1.49 billion, or 94 cents per share, from $1.89 billion, or $1.17 per share, a year earlier.

Excluding items, earnings were $1.12 per share, topping the analysts' average estimate of $1.09, according to Thomson Reuters I/B/E/S.

Revenue fell 2 percent to $16.5 billion, in line with Wall Street estimates.

The decline resulted in part from a loss of revenue in China and Mexico after the company sold the bottling operations in those countries to franchisees. The stronger U.S. dollar, which reduces the value of overseas revenue, also cut into sales.

Excluding those items, organic revenue rose 5 percent, with contributions of 1 percentage point from volume and 4 percentage points from price increases.

Volume rose 6 percent in the snack business and 1 percent in the beverage business. In the Americas, volume rose 5 percent in snacks and fell 1 percent in beverages. In Europe, volume rose 1 percent in snacks and fell 2 percent in beverages.

The company affirmed its 2012 outlook, which calls for earnings per share to fall 5 percent from the $4.40 it earned in 2011. It expects revenue to grow by a mid-single-digit percentage rate, excluding the reduction from refranchising its businesses in China and Mexico.

PepsiCo said it still expected foreign exchange rates to hurt earnings-per-share growth by 3 percentage points.

The recent spike in corn prices resulting from the U.S. drought should not affect the company in the near term, Chief Financial Officer Hugh Johnston said, given its forward-buying strategy. He also said corn was only one of many ingredients PepsiCo purchases.

For the company, 2012 is a transition year as it ramps up marketing, cuts thousands of jobs and streamlines its portfolio to improve performance, especially in its North American beverage business.

So far this year, PepsiCo has introduced Pepsi Next, a mid-calorie cola, and started a new global marketing campaign for its flagship Pepsi brand.

Wall Street seems to have warmed to the turnaround plan. At Tuesday's close, PepsiCo were up 7 percent since February 9, when the plan was announced.

The stock was up 2.2 percent at $70.30 on the New York Stock Exchange in afternoon trading.

(Reporting by Martinne Geller in New York; Editing by Lisa Von Ahn and Maureen Bavdek)

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