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PepsiCo beats expectations, stands by portfolio

July 24, 2013

NEW YORK (AP) — PepsiCo Inc. reported a quarterly profit that came in above Wall Street expectations on Wednesday and said that its mixed portfolio played a role, underscoring its commitment to selling both drinks and snacks.

The company, which makes Gatorade, Doritos, Tropicana and Quaker, said higher prices helped lift revenue for its Americas food division. Volume also rose 2 percent.

In its Americas beverage unit, however, revenue slipped as higher prices failed to offset a 3.5 percent decline in volume. Sodas in North America fell in the mid-single digits, while non-carbonated drinks declined in the low-single digits.

“The fact remains that the beverage category in the U.S. has its challenges, especially carbonated soft drinks,” CEO Indra Nooyi said in a call with analysts. But she said the unit is improving its productivity and alluded to the company’s work in trying to find a way to reduce calories in sodas while using natural sweeteners.

The results come a week after investor Nelson Peltz said he wants PepsiCo to split its beverage and food businesses and buy Oreo cookie maker Mondelez to create a major global snacks company. Peltz says PepsiCo’s snacks unit is being overshadowed by its underperforming drinks unit.

In an interview on CNBC, however, Chief Financial Officer Hugh Johnston shot down the idea and said that having a variety of products helped the company deliver strong results despite bad weather during the period.

For example, he noted that Gatorade sales increase when it’s hot, and that Quaker and Tropicana sales increase when it’s cold.

“The portfolio is what enables you to power through these things,” Johnston said.

Last week, Coca-Cola Co. had blamed unusually cold, wet weather for its disappointing results, saying such conditions aren’t good for sales of soda and other drinks.

In an apparent dig, Johnston also noted that the deal being proposed by Peltz would benefit Mondelez shareholders; Peltz owned a $1.23 billion stake in Mondelez as of March 31, according to a filing with the Securities and Exchange Commission.

In addition to higher prices for its drinks and snacks, PepsiCo, based in Purchase, New York, noted that its improved productivity also helped lift operating profit during the period. It stood by its outlook for year, with core earnings per share expected to grow 7 percent.

Its stock was up 1 percent at $87.20 in premarket trading. Over the past year, it’s up 25 percent.

PepsiCo has repeatedly stressed that it plans to move forward as a combined snack and drink company, and that it’s not interested in any major deals. The CEO of investment firm BlackRock, which owns a 5 percent stake in PepsiCo, has said that he backs the company and disagrees with Peltz’s plan.

Besides, PepsiCo is already reviewing some options that could quiet investors.

The company is considering a restructuring for its North American beverage unit, including a possible spinoff. That would mean that the company would still sell its beverages in others parts of the world, such as China and India, where the business is faring far better.

An update on that review isn’t expected until early next year.

For the quarter, PepsiCo also reported a 6 percent increase in volume for snacks and a 9 percent jump in drinks for the region encompassing Asia, the Middle East and Africa.

In Europe, revenue rose 4 percent, boosted by a 2 percent increase in volume and 2 percent increase in prices.

The company said it earned $2.01 billion, or $1.28 per share, for the period ended June 15. That’s up from $1.49 billion, or 94 cents per share, in the year-ago period when its results were hit by one-time charges as a result of a deal to expand distribution in China.

Not including one-time items, it earned $1.31 per share, above the $1.19 analysts expected.

Revenue rose 2 percent to $16.81 billion, more than the $16.79 billion forecast by Wall Street.

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