By Martinne Geller
July 24 PepsiCo Inc reported
higher-than-expected quarterly earnings on Wednesday, as sales
of Frito-Lay snacks, Quaker Oats and other food products grew at
a faster pace than its beverage business.
Even so, the company said it is staying with its full-year
profit outlook, reaffirming an earlier forecast for 7 percent
growth. It said it was taking a conservative view because of the
potential impact of global volatility and possible increases in
spending on advertising and research and development.
"The world remains a volatile place and we may also choose
to incrementally invest in additional long-term value-building
initiatives," said Chief Financial Officer Hugh Johnston during
a conference call after the results.
Johnston used the occasion to defend PepsiCo's current model
of selling both snacks and drinks. In addition to co-marketing
opportunities and added leverage with retailers, a broad
portfolio serves as a hedge, he told CNBC television.
"When it's hot, Gatorade sells," he said, adding that when
it is cold, Quaker oatmeal sells.
His remarks came a week after activist shareholder Nelson
Peltz urged the company to buy Mondelez International Inc
, which makes Oreo cookies, and to split off PepsiCo's
"We think PepsiCo as a portfolio is working so well right
now," Johnston said on CNBC. "The complexity of taking on an $80
billion acquisition and somehow trying to do all that
integration, frankly, will distract the business from doing what
it is that we're doing right now, which is creating a lot of
value for shareholders."
PepsiCo shares, which had gained 26 percent this year, were
down 0.4 percent at $85.81 in afternoon trade.
While it has no current plans to separate its global
beverage business, the company is weighing "all options" for the
North America business. Johnston declined on Wednesday to say
what those options were, but analysts have said they could
include selling or spinning off the business, or refranchising
the bottling assets to independent distributors.
PepsiCo said it would give an update on its strategy early
next year, declining to push it forward because of pressure from
STRENGTH IN FOOD
Net income rose to $2.01 billion, or $1.28 a share, in
PepsiCo's second quarter ended on June 15, from $1.49 billion,
or 94 cents, a year earlier.
Excluding items such as restructuring and integration
charges, earnings came in at $1.31 a share. On that basis,
analysts on average had expected $1.19 a share, according to
Thomson Reuters I/B/E/S.
Net revenue rose 2 percent to $16.81 billion, topping
analysts' estimate of $16.79 billion.
Sales volume rose 3 percent for the food business and 1.5
percent for the beverage business. Volume tracks the amount of
"It seems like beverages have slowed down a little bit, so
to have that snack offset is really nice right now," said Edward
Jones analyst Jack Russo. "And that's where you really get the
benefit with lower commodity costs."
Dr Pepper Snapple, which only sells drinks, also
released results on Wednesday, saying profit fell on weak sales
volume. Its shares were down 2.8 percent at $46.33.
Last week Coca-Cola posted disappointing
sales, blaming the weather. [ID:nL1N0FM0BE}