Bloomberg News

PepsiCo Profit Rises 4.1% on Snacks Sales in Latin America

October 12, 2011

(Updates shares in fifth paragraph.)

Oct. 12 (Bloomberg) -- PepsiCo Inc., the world’s largest snack-food maker, reported a 4.1 percent rise in third-quarter profit, helped by price increases and sales of snacks in Latin America.

Net income advanced to $2 billion, or $1.25 a share, from $1.92 billion, or $1.19, a year earlier, Purchase, New York- based PepsiCo said today in a statement. Profit excluding some items totaled $1.31 a share, beating the $1.30 average of 14 analysts’ estimates compiled by Bloomberg.

Chief Executive Officer Indra Nooyi raised snack and beverage prices globally in the quarter to help counter higher commodity costs, which the company projects will continue to increase. PepsiCo created a council in September to better coordinate sales of snacks and beverages after the company reduced its full-year profit forecast.

“PepsiCo has been more aggressive raising prices than they have in a long time,” Jack Russo, an analyst with Edward Jones & Co. in St. Louis, Missouri, said today in a telephone interview. “All the staples companies are seeing cost pressures.” Russo recommends investors buy the shares.

PepsiCo, the world’s second-largest soft drink maker, rose 2.9 percent to $62.70 at the close in New York. The shares have dropped 4 percent this year.

‘Margin Compression’

PepsiCo’s cost of sales in the quarter jumped 21 percent to $8.45 billion, as operating margin narrowed to 16.5 percent from 18 percent a year earlier.

“The margin compression this quarter is very straightforward,” Chief Financial Officer Hugh Johnston said during a conference call with reporters. “It’s driven by the net of the high input cost inflation that we have, relative to the pricing that the consumer is able to absorb in developed markets.”

Third-quarter sales rose 13 percent to $17.6 billion, according to the statement. Global snacks volume grew 8 percent while beverage volume advanced 4 percent.

Volume in the Latin America foods business climbed 3.5 percent, driven by the division’s largest markets, Mexico and Brazil. Snacks volume in the Asia, Middle East & Africa unit jumped 16 percent as beverage volume rose 6 percent.

Volume at PepsiCo’s Americas beverage unit was little changed. Non-carbonated drinks volume growth in North America was led by a 9 percent increase in Gatorade.

Losses to Coca-Cola

Carlos Laboy, an analyst at Credit Suisse Group AG, said PepsiCo should separate its snacks unit from its North American beverage division amid market-share losses to Coca-Cola Co.

“PepsiCo will need to transform its current model into an advantaged one,” Laboy, who is based in New York and has an “outperform” rating on the shares, wrote in a report this month. “It needs the funds to keep pace and a better structure to make faster growth sustainable.”

Nooyi said on a conference call with analysts today that PepsiCo’s value is maximized as one company. Splitting the company wouldn’t outweigh the resulting increased operating costs, said Johnston, adding he has “looked at every single scenario you could probably come up with” to boost shareholder value.

PepsiCo also reiterated its forecast for 2011 of “high- single-digit” earnings per share growth.

Coca-Cola, the world’s largest soft-drink maker, will report third-quarter earnings Oct. 18.

(PepsiCo executives held a conference call at 8 a.m. New York time to discuss the results. To listen, visit LIVE <GO>.)

--Editors: James Callan, Cecile Daurat

To contact the reporter on this story: Duane D. Stanford in Atlanta at dstanford2@bloomberg.net

To contact the editor responsible for this story: Robin Ajello at rajello@bloomberg.net


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