NEW YORK (Reuters) - Pepsi Bottling Group Inc PBG.N reported slightly-better-than-expected quarterly profit on Tuesday, but revenue fell short of Wall Street estimates, hurt by lower volume in the United States, Canada and Europe.
The largest bottler of PepsiCo Inc PEP.N drinks probably saw its North American performance dragged down by weak bottled water sales, said JP Morgan analyst John Faucher, noting that carbonated soft drink sales have been improving.
The recession has led many consumers to shy away from pricier, noncarbonated drinks like teas and energy drinks, in favor of less expensive sodas.
“Net, results were a little lighter than expected, but (Pepsi Bottling) is probably not killing it to beat the quarter, given the deal,” Faucher said in a research note, referring to the bottler’s pending acquisition by PepsiCo, its largest shareholder and supplier.
With the acquisition, PepsiCo, the second-largest soft drink maker after Coca-Cola Co (KO.N), is seeking to cut costs in North America.
Pepsi is also buying its second-largest bottler, PepsiAmericas Inc PAS.N. The acquisitions, worth a combined $7.8 billion, are expected to close in late 2009 or early 2010.
Pepsi said on Monday that Pepsi Bottling Chief Executive Eric Foss would run the new integrated North American bottling business as it competes with the Coke bottling system, which remains decentralized.
The Pepsi bottlers’ European operations will be managed by PepsiCo’s European unit once the acquisitions are completed.
Pepsi Bottling shares were down 3 cents at $37.28 on the New York Stock Exchange. PepsiCo has offered $36.50 per share for the company, which bottles and sells Pepsi drinks in North America, Greece, Russia, Spain and Turkey.
Pepsi Bottling said net income rose to $254 million, or $1.14 per share, in the third quarter, from $231 million, or $1.06 per share, a year earlier.
Excluding items, earnings were $1.06 per share. On that basis, analysts’ average forecast was $1.05, according to Thomson Reuters I/B/E/S.
Net revenue dropped nearly 5 percent to $3.63 billion, falling short of analysts’ average expectation for $3.73 billion.
Pepsi Bottling, whose products include Pepsi-Cola, Aquafina water and Lipton teas, said total sales by volume fell 2 percent. A 1 percent gain in Mexico was offset by declines of 5 percent in Europe and 1 percent in the United States and Canada.
Excluding the impact of currency fluctuations, revenue per case rose 4 percent, helped by increases of 3 percent in the United States and Canada, 7 percent in Europe and 6 percent in Mexico.
The increases reflect the benefits of higher pricing and bode well for other soft drink bottlers, namely Coca-Cola Enterprises Inc CCE.N and Dr Pepper Snapple Group Inc DPS.N, according to UBS analyst Kaumil Gajrawala.
Pepsi Bottling said it remained comfortable with its outlook for 2009 earnings at the top end of a prior forecast of $2.30 to $2.40 per share. Yet it raised its operating free cash flow forecast by $100 million, to $550 million.
Reporting by Martinne Geller; editing by Derek Caney, Dave Zimmerman and John Wallace