PepsiCo Beats Expectations as Hot Summer Boosted Sales

NEW YORK – PepsiCo Inc. (PEP) Thursday said quarterly profit rose by a better-than-expected 18 percent before a charge as hot summer weather drove sales of noncarbonated beverages like Aquafina bottled water and Gatorade sports drink.

The results beat Wall Street forecasts, pushing PepsiCo stock up as much as 3.5 percent in early trading.

The company also said earnings for the full year would top its previous forecast despite rising costs and uncertainty about consumer spending in the wake of Hurricanes Katrina and Rita.

While PepsiCo's stable of noncarbonated beverages spurred the growth, soft drinks such as Sierra Mist (search) and diet offerings performed well, said Legg Mason analyst Mark Swartzberg.

"I think we see the power of some of the decisions they've made to be a total liquid-refreshment company," said Swartzberg, who has a "hold" rating on PepsiCo stock.

The company, which also makes Doritos snacks (search) and Quaker granola bars, reported net earnings of $864 million, or 51 cents a share, for the third quarter ended Sept. 3, compared with $1.36 billion, or 79 cents a share, a year earlier.

The latest results included a $468 million charge for repatriating $7.5 billion in international profits under the American Jobs Creation Act (search), a move planned for months.

Excluding the charge, earnings were 78 cents a share, 5 cents higher than the average forecast from analysts polled by Reuters Estimates.

The year-earlier results included tax benefits of $221 million, or 13 cents a share.

Revenue rose to $8.18 billion from $7.26 billion. The company's total volume of products sold was up 8 percent.

Volume at the Pepsi Beverages North America unit also rose 8 percent. The division has struggled in recent years as health-conscious consumers have shunned traditional soft drinks.

"Our North American beverage business capitalized on strong weather-driven demand to deliver an outstanding quarter," Chief Executive Steve Reinemund said in a statement.

Purchase, New York-based PepsiCo estimated full-year earnings at $2.64 to $2.65 per share, excluding special items such as the repatriation charge. The company had previously forecast earnings per share of $2.56 to $2.59.

Including items, it sees full-year profit at $2.41 to $2.42 per share.

The quarterly results showed PepsiCo has been able to weather the storm of changing consumer tastes, said Morgan Stanley analyst William Pecoriello, who rated the stock "overweight."

"(Pepsi's) diversified portfolio of non-carbs and snacks along with international strength is allowing it to offset other headwinds on the business such as energy," Pecoriello said in a research note.

PepsiCo shares were up $1.33, or 2.4 percent, at $56.39 on the New York Stock Exchange, after rising as high as $57 earlier in the session. Rival Coca-Cola Co.'s (KO) stock fell 22 cents to $42.65.

So far this year, Pepsi stock has risen about 5.5 percent year to date, while Coke is up just 1.7 percent. And PepsiCo trades at about 21.2 times anticipated earnings for next year, compared with Coke's multiple of about 19.9 times.

Coca-Cola has been retooling over the past year and a half as sales slowed in its core soft-drink brands. The moves initiated by its new management team have started to gain some traction, and it has ramped up marketing spending.

PepsiCo, while better equipped to handle the shift, has been spending much of its marketing and innovation budget on developing items for customers who are watching their calories closely.