Pepsi’s profit gets boost from weak dollar

From Reuters

PepsiCo Inc. reported a better-than-expected quarterly profit Thursday as higher sales of its snacks and beverages and a weak dollar offset higher costs for materials such as grains, cooking oil and energy.

But the maker of Pepsi Cola, Lay’s potato chips and Quaker oatmeal forecast its 2008 raw material costs would be higher than expected.

Chief Executive Indra Nooyi told analysts during a conference call that inflation on raw materials for North America, excluding oranges, would be more than one percentage point above this year’s low single-digit rate. She said trends were similar abroad.

“While we are addressing the inflation issue, we are also sensitive to the possibility of slower U.S. economic growth in the coming year,” Nooyi said.


Despite the cautious outlook for consumer spending and commodity costs, Nooyi said she was confident the Purchase, N.Y.-based company could achieve mid-single-digit volume growth and earnings-per-share growth of at least 10% in 2008.

For the fiscal third quarter that ended Sept. 8, PepsiCo reported net income of $1.74 billion, or $1.06 a share, up 17% from $1.49 billion, or 89 cents a share, a year earlier.

Excluding a tax benefit, PepsiCo earned 99 cents a share, beating analysts’ average forecast of 96 cents, according to Reuters Estimates.

Quarterly revenue rose 11% to $10.17 billion.


The company has been diversifying to offset declining soft-drink sales in the United States, where consumers are turning to bottled water, tea and other alternatives that they consider more healthful.

In the North American drinks segment, revenue was up 3%, helped by price increases and acquisitions, although case volume fell 1%. Sales of carbonated beverages such as Pepsi Cola fell 3%, while noncarbonated products such as Lipton tea and Aquafina water rose 2%.

Sales of Gatorade sports drinks and juice brands such as Tropicana fell at a mid-single-digit percentage rate. The juice business suffered because of price increases taken to offset higher costs for raw materials.

At Pepsi’s Frito Lay business in North America, revenue grew 6% and volume rose 2%.


In the international unit, revenue climbed 22%, helped by price increases, a 7% rise in snack volume and an 8% increase in beverage volume.

The weak dollar contributed 6 percentage points of growth as sales in other currencies increased when they were converted to dollars for inclusion in the company’s income statement.

Acquisitions and divestitures added 7 percentage points of growth.

PepsiCo reiterated its previous forecast for full-year core earnings of at least $3.35 a share. Analysts on average were looking for $3.38, excluding items, according to Reuters Estimates.