NEW YORK – PepsiCo Inc. (PEP) Tuesday said quarterly profit rose a better-than-expected 13 percent as strong growth in its international beverage and snacks businesses offset weak U.S. sales of carbonated drinks.
PepsiCo, like its bigger rival Coca-Cola Co. (KO), has been struggling with weak U.S. sales of carbonated soft drinks as Americans move away from sugary beverages.
"PepsiCo's portfolio strategy continued to show its strength with ... stronger-than-expected PepsiCo International growth compensating for solid, but nonetheless disappointing performance in North America," Legg Mason analyst Mark Swartzberg said in a research note.
Swartzberg, who has a "hold" rating on PepsiCo shares, said the weakness in North America was partly due to the lack of new products at the Frito-Lay (search) snack unit.
PepsiCo, whose products range from Gatorade to Doritos, reported a profit of $1.19 billion, or 70 cents a share, in the second quarter ended June 11, compared with $1.06 billion, or 61 cents a share, a year earlier.
Analysts, on average, were expecting earnings per share of 67 cents, according to Reuters Estimates.
Shares of PepsiCo rose 1.9 percent to $54.86 in early afternoon trading on the New York Stock Exchange. PepsiCo.'s stock has risen 3.4 percent in the past year while Coca-Cola's has dropped 16 percent during the same period.
The second-quarter profit included a $35 million pretax gain from the sale of shares in Pepsi Bottling Group Inc., the largest bottler of Pepsi drinks.
Revenue rose to $7.70 billion from $7.07 billion. Sales by volume rose 4 percent during the quarter.
Coca-Cola has been retooling over the past year and a half to meet changing consumer tastes as sales slowed of its core soft drink brands, and its moves are starting to gain traction. Coca-Cola plans to raise its marketing spending by $350 million to $400 million annually to generate buzz about its bottled water, sports and energy drinks and diet sodas.
PepsiCo plans to step up its marketing investment in the second half of the year, which will impact profit in the third quarter, Chairman and Chief Executive Steve Reinemund told analysts on a conference call. The investments have been factored into the company's budget for months, he added.
Profit at PepsiCo's international unit rose 23 percent and revenue rose 15 percent on strong sales of snacks in countries such as India, China and Russia. International beverage volume rose 10 percent.
Volume at the North American beverage unit fell 0.5 percent due to a downturn in carbonated soft drinks. But a 5 percent increase in the sales volume of noncarbonated beverages such as Propel fitness water and Aquafina helped push up the division's profit by 4 percent.
PepsiCo revised its earnings per share forecast for the full year to a range of $2.56 to $2.59, excluding the impact of a 53rd week in the fiscal year. Its previous forecast was for earnings of $2.56 a share. Including the 53rd week, the company forecast earnings per share of $2.60 to $2.63.
The average analyst forecast for the full year was $2.58, according to Reuters Estimates.