PepsiCo Third-Quarter Profit Climbs on Cost Cuts; Sales Fall

The Purchase, New York, maker of drinks and Frito-Lay snacks earned $US1.72 billion ($A1.93 billion), or $US1.09 per share, in the three months ended Sept 5. That's up from the $US1.58 billion ($A1.77 billion), or 99 cents per share, a year ago.

The results beat expectations of analysts polled by Thomson Reuters, whose estimates typically exclude one-time items, forecast profit of $1.03 per share.

PepsiCo, which also sells the Gatorade and Tropicana brands, said its sales slipped 1 per cent to $US11.08 billion ($A12.44 billion) from $US11.24 billion ($A12.62 billion). The results fell short of Wall Street's $US11.25 billion ($A12.63 billion) estimate.

Shares fell 88 cents to $60.29 in morning trading Thursday.

Sales were hindered by weakness in its PepsiCo Americas Beverages unit, which reported a 6 per cent drop in volume and a 9 per cent revenue decline.

The results somewhat reflect a change in shoppers' Buying habits, as consumers shift toward juices and teas and away from soft drinks.

CEO Indra Nooyi said consumers also are more focused on Cost now, and that's something the company expects to last.

She told investors the company is still developing new products that have healthy attributes, targeting key groups like baby boomers, but price is just as important.

"Clearly one part of the effort has to be on launching lower-priced options, and our R&D people are focused on that," she said.

Although there's weakness in the soft drink business, PepsiCo's sales have been helped by strength in its snack business.

The Frito-Lay North America division reported revenue climbed 5 per cent in the quarter while volume rose 3 per cent. The company said its Lay's brand posted high single-digit growth and its Sabra joint venture and variety packs experienced solid gains.

Its effort to add 20 per cent extra volume - while keeping price stable - didn't win over many consumers, the company said, as PepsiCo learned bigger packages didn't spur consumers to purchase as much as price did.

CFO Richard Goodman said as each month wore on, consumers had more constrained budgets so PepsiCo offered more promotions at the end of the month to keep spurring sales.

PepsiCo's other major food business, Quaker Foods North America, also posted revenue gains. Food makers in general have benefited during the recession as strapped consumers eat at home more to save money.

The company also saw strength abroad, with sales increases at PepsiCo International and Asia, Middle East and Africa divisions.

Costs fell faster than revenue, with selling, general and administrative expences down 8 per cent to $US3.65 billion ($A4.1 billion).

PepsiCo is in the midst of acquiring its largest North American bottlers Pepsi Bottling Group Inc and PepsiAmericas Inc.

The two bottlers accepted a $US7.8 billion ($A8.76 billion) deal in August, after rejecting an earlier offer for less money.

Analysts say the deal will transform the North American beverage business because it will mean PepsiCo can be quicker to market with new products and even determine how they are positioned on shelves.

The company reaffirmed its full-year guidance for fiscal 2009 of earnings per share growth of mid-to-high single digits, if currency stays constant. For fiscal 2010, PepsiCo targets earnings per share growth of between 11 to 13 per cent, with currency staying constant.

Deutsche Bank-North America analyst Marc Greenberg said the estimates for next year imply earnings per share of $4.16 to $4.24, versus his $4.20 estimate, which he left unchanged.

He maintained a "Buy" rating on the stock with a $70 price target.

According to Thomson Reuters, analysts on average expect earnings per share of $4.11 in fiscal 2010.

AP