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October 11, 2007

PepsiCo 3Q profit rises 17 percent

PepsiCo Inc., the huge beverage and snack foods maker, said Thursday its third-quarter profit rose 17 percent on the strength of its international division and a tax benefit.
 
The owner of the world's second biggest soft drink company and Frito-Lay snacks maker earned $1.74 billion, or $1.06 per share, for the quarter ended Sept. 8, up from $1.49 billion, or 89 cents per share, a year earlier.

Revenue rose 11 percent to $10.17 billion from $9.13 billion last year.

Analysts polled by Thomson Financial had predicted earnings of 96 cents per share on revenue of $9.91 billion.

The earnings estimates typically exclude one-time items. The company said that excluding a $115 million tax benefit, it generated core earnings of 99 cents per share.

While that was higher than Wall Street's estimate, its shares fell 65 cents to $72.95 in morning trading Thursday after rising as high as $74.10 earlier in the session.

In addition to Pepsi beverages and Frito-Lay snacks, the company owns Gatorade and Tropicana drinks and the Quaker foods business. PepsiCo is the second biggest soft drink company after The Coca-Cola Co. in Atlanta.

The company reiterated its full-year earnings per share forecast of at least $3.35.

Overall operating profit grew 10 percent.

The fast-growing PepsiCo International unit reported operating profit grew 19 percent on revenue growth of 22 percent. Revenue was boosted 6 percentage points by favorable foreign currency comparisons and another 7 points by the effect of acquisitions and divestitures. The steepest growth this quarter was in Asia, as snacks grew 20 percent and beverages grew 12 percent.

The company's three other divisions reported single-digit growth in operating profit and revenue.

Frito-Lay North America had 7 percent operating profit growth on a 6 percent rise in revenue. PepsiCo Beverages North America operating profit grew 7 percent on a 3 percent rise in revenue. And Quaker Foods North America operating profit and revenue each grew 2 percent.

The company reported weakness in two areas, as sales volume declined 2 percent for Quaker and 1 percent for PepsiCo Beverages North America.

Sales of carbonated soft drinks in North America declined 3 percent while non-carbonated beverages grew 2 percent, led by Lipton ready-to-drink teas. Sales volumes of Gatorade, juice and juice drinks fell by a mid-single digit rate, while Aquafina water volume grew by a mid-single digit rate.

Analysts have closely watched for a recovery in Gatorade sales, but were disappointed by modest declines in the quarter.

"Investors may pick at continuing volume softness at Gatorade, but management will likely ease concerns by talking optimistically about new products and better margins next year," Goldman Sachs analyst Judy Hong told investors.

PepsiCo plans to launch a new low-calorie Gatorade called G2 in December.

At Frito-Lay, Doritos, Sunchips, multi-packs and dips grew by double-digits while Lay's reported declines.

"All of the Company's operating divisions successfully navigated through an environment of higher input costs," Chief Executive Indra Nooyi said in a statement. "Our third-quarter performance was very strong."

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