PepsiCo keeps 2012 outlook despite quarterly beat

Wed Oct 17, 2012 11:12am EDT

Cases of Pepsi are displayed for sale in Carlsbad, California February 7, 2012. REUTERS/Mike Blake

Cases of Pepsi are displayed for sale in Carlsbad, California February 7, 2012.

Credit: Reuters/Mike Blake

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(Reuters) - PepsiCo Inc reported higher-than-expected quarterly earnings on Wednesday, helped by higher prices and lower interest expense, in a sign the beverage and snack company is progressing on its turnaround.

This has been a transition year for the maker of Diet Pepsi, Frito-Lay snacks and Tropicana orange juice as it ramped up advertising and streamlined its portfolio and workforce to improve performance, especially in its North American drinks unit, which was losing market share to Coca-Cola.

Because the company is reinvesting its profits in marketing and other expenses, it stood by its full-year profit goal despite the third-quarter surprise.

PepsiCo shares rose slightly in morning trading, as enthusiasm was dampened by weaker-than-expected revenue, hurt by the stronger U.S. dollar and the exit of certain businesses.

"As we have said, PepsiCo is a work in progress and we think this shows movement toward more stable results," JP Morgan analyst John Faucher said, adding that the stock would probably be even higher if the Americas' beverage business was stronger.

In the just-ended third quarter, sales volume declined in the Americas, hurt by decisions to stop selling unprofitable drinks, including some juices and bottled water packages where Chief Executive Indra Nooyi said there was "a hell of a price war."

"We won't chase volume growth at all costs," Nooyi told analysts. She said moving forward, PepsiCo would focus on categories that were growing profitably.

Third-quarter net income was $1.90 billion, or $1.21 per share, down from $2.00 billion, or $1.25 per share, a year earlier.

Excluding restructuring and other charges and a gain on commodity hedges, earnings were $1.20 per share. On that basis, analysts on average were expecting $1.16 per share, according to Thomson Reuters I/B/E/S.

Revenue fell 5 percent to $16.65 billion, below analysts' average estimate of $16.90 billion.

Excluding the impacts of currency fluctuations and the refranchising of its bottling businesses in China and Mexico, revenue grew 5 percent, reflecting 1 percentage point of volume growth and 4 percentage points from price increases.

The results come a day after Coca-Cola also reported weaker-than-expected revenue, hurt by declines in Europe and the Pacific region.

In the third quarter, overall sales volume rose 6 percent in the snack business, after acquisitions lifted sales in Latin America. In North America, volume rose 1 percent at Frito-Lay and 2 percent at Quaker Foods.

PepsiCo's Americas Beverage business saw volume fall 3 percent.

The company also affirmed its full-year outlook, which calls for earnings per share to fall 5 percent from the $4.40 it earned in 2011, and revenue to increase by a low single-digit rate reflecting the changes in China and Mexico.

The company has incurred restructuring charges of $193 million through the third quarter related to a productivity program. It expects additional charges of $205 million in the remainder of 2012, and $129 million from 2013 through 2015.

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

PepsiCo shares were little changed at $70.31 in morning New York Stock Exchange trading.

(Reporting By Martinne Geller in New York; Editing by Maureen Bavdek)

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