PepsiCo profit tops view; repeats M&A plan
NEW YORK (Reuters) - PepsiCo Inc (PEP.N) posted a greater-than-expected quarterly profit on Tuesday on higher sales of Frito-Lay snacks and strength in international markets.
The world's No. 2 soft-drink company, when asked about mergers and acquisitions, also put to rest market speculation about a possible merger with Nestle SA (NESN.VX), sparked by a Wall Street Journal report last week that said the food and beverage companies had held talks.
"Our strategy has not changed," said Chief Executive Indra Nooyi on a conference call, referring to the company's stated plan to consider tuck-in acquisitions ranging in size from $5 million to $2 billion. By contrast, as of July 3 Nestle had a market capitalization of $153.40 billion.
"So contrary to these rumors, we are a very, very conservative and careful company when it comes to deal-making," Nooyi said, noting PepsiCo tries to make sure its acquisitions add to earnings within one year of completion and can be smoothly integrated.
Nooyi also said in an interview that Pepsi's globe-spanning acquisition pipeline, "felt like a more doable pipeline than ever before," because Pepsi is either the only suitor or likely able to offer the highest bid.
Nooyi, who took over Pepsi in October, sees the company continuing to grow as a snack and drinks provider, not one or the other. Likely additions to the company's portfolio include noncarbonated beverages and snacks such as nuts, seeds and chips made from healthier ingredients.
PepsiCo, based in Purchase, New York, reported earnings of $1.56 billion, or 94 cents per share, for the second quarter ended June 16, up 13 percent from $1.38 billion, or 81 cents per share, a year earlier, easily beating analysts' average estimate of 89 cents, according to Reuters Estimates.
Quarterly revenue rose 10 percent to $9.61 billion, fueled by an 18 percent increase in international sales.
Worldwide sales by volume increased 4 percent.
The company said it benefited from a reduction of 2.2 percentage points in the quarterly tax rate.
Pepsi also raised its full-year earnings forecast to at least $3.35 per share from its prior view of at least $3.30.
Stifel Nicolaus analyst Mark Swartzberg said the results were a sign that PepsiCo's growth and consistency placed it among the top-performing consumer staples companies, owing to its diversity of business and strong international growth.
Swartzberg, who has a "hold" rating on the shares, said there was potential for the stock to gain value, but not enough to warrant a "buy" recommendation, since Pepsi's long record of strong results is widely expected by investors and already reflected in its valuation.
As of Monday, Pepsi shares traded at 19.9 times full-year earnings estimates, a slight discount to Coca-Cola Co (KO.N) stock, which had a multiple of 20.4, according to Reuters data.
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