NEW YORK PepsiCo Inc (PEP.N) reported a quarterly profit that missed Wall Street forecasts and cut its full-year outlook as an economic slowdown flattened soft drink demand, and its shares closed down nearly 12 percent.
The shares had earlier fallen as much as 13.8 percent, posting their biggest one-day slide since the day of the 1987 market crash.
PepsiCo also said on Tuesday it would cut 3,300 jobs, or roughly 1.8 percent of its work force, as part of a plan to save more than $1.2 billion over three years.
The maker of Pepsi-Cola drinks, Frito-Lay snacks and Quaker foods did not give a forecast for 2009, which also weighed on shares due to investor uncertainty about the next year, said Morgan Stanley analyst William Pecoriello.
A U.S. housing slump, credit crunch and job losses have meant consumers are eating less often at restaurants and cutting back on trips to gas stations or convenience stores.
The changing habits have hurt beverage sales, especially sales of bottled water, as many consumers turn to the tap to economize, said Pepsi Chief Executive Officer Indra Nooyi.
"The last 12 to 18 months have been unprecedented," said Nooyi on a conference call. "It is very hard to predict what the shape of this category is going be."
Volume for soft drinks like Pepsi, Sierra Mist and Mountain Dew fell 3 percent in North America. Noncarbonated beverage volume fell 5 percent, due to double-digit declines in water brands, which include Propel and Aquafina.
Pepsi's weak beverage sales bode poorly for rival Coca-Cola Co (KO.N), which reports earnings on Wednesday, UBS analyst Kaumil Gajrawala said. Shares of Coke, which has no food business to diversify results, fell 7.6 percent.
Growth in the food and international businesses helped Pepsi's total revenue rise 11 percent to $11.24 billion, but analysts said deeper concerns about commodity prices and its performance in North America weighed on its stock price.
"Although we believe valuation is attractive, we believe the net risk/reward picture is not compelling enough to aggressively buy Pepsi shares," Stifel Nicolaus analyst Mark Swartzberg said in a note, keeping a "hold" rating on Pepsi.
WEAK PERFORMANCE, OUTLOOK UNCERTAIN
Net income fell to $1.58 billion, or 99 cents per share, in the third quarter ended September 6, from $1.74 billion, or $1.06 per share, a year earlier.
Excluding losses on commodity hedges, earnings were $1.06 per share. Analysts on average were expecting $1.08, according to Reuters Estimates.
Revenue at Pepsi's food business rose 12 percent and operating profit rose 9 percent, helped by higher Frito-Lay volume and price increases to offset rising commodity costs.
International revenue rose 20 percent and profit rose 18 percent. Foreign exchange rates and recent acquisitions added 5 points to revenue growth and 4 points to profit growth.
Citing a recent surge in the value of the U.S. dollar, the company lowered its 2008 earnings outlook to a range of $3.67 to $3.68 per share at current exchange rates, from a prior forecast of at least $3.72 per share, excluding items.
Pepsi said it expects to incur a charge of $550 million to $600 million in the fourth quarter related to the job cuts, but gave few details about future quarters.
"Whatever volatility in commodities, whatever uncertainty in the credit markets and financial markets ... we have seen through the first three quarters -- it simply pales in comparison with the gyrations that we've experienced globally over the past couple of weeks," CEO Nooyi said.
She said it was "simply not prudent" to give a profit forecast for 2009.
"There's no clear base for forecasting currencies, the impact of the evolving financial crisis on GDP growth rates or the effect all of this will have on consumer spending patterns," Nooyi said.
Pepsi shares closed down $7.37 to $54.40 on the New York Stock Exchange after falling as much as 13.8 percent to $53.26. Coke shares closed down $3.53 at $43.73.
(Editing by Gerald E. McCormick, Maureen Bavdek and Carol Bishopric)