Quaker unit weighs on PepsiCo profit

by Eric Schroeder
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PURCHASE, N.Y. — Sluggish results at Quaker Foods North America, particularly in ready-to-eat cereals, contributed to a 3% decline in earnings at ‍PepsiCo, Inc. during the second quarter.

Net income in the quarter ended June 12 totaled $1,613 million, equal to 98c per share on the common stock, down from $1,668 million, or $1.06 per share, during the same quarter of the previous year. The most recent results included $155 million in expenses associated with the acquisitions of The Pepsi Bottling Group, Inc. and PepsiAmericas, Inc.

Revenue, meanwhile, was $14,801 million, up 40% from $10,592 million during the same quarter of the previous year. Revenues were boosted by the addition of the two anchor bottlers.

“We posted a solid second quarter, exceeding our core constant currency e.p.s. growth target for the first half of the year,” said Indra Nooyi, chairman and chief executive officer. “Our results reflect our ability to generate sustainable growth across a global snack and beverage portfolio despite continued macroeconomic challenges. In line with our plan, our bottler integration is on track and unlocking opportunities and efficiencies. We continue to make investments in near- and long-term opportunities across both our developed and emerging markets, and I’m very pleased that we’ve taken a disciplined approach to our activities in North America.”

Operating profit at ‍PepsiCo Americas Beverages rose 54% to $952 million from $618 million as the company successfully completed its bottling transactions, and volume increased 13%. PepsiCo attributed the volume improvement to the launch of Gatorade’s G Series and Lipton ready-to-drink teas. Sales soared 112% to $5,548 million from $2,618 million.

Operating profit within the ‍PepsiCo Americas Foods unit of ‍PepsiCo, Inc. rose 3% in the second quarter of fiscal 2010, boosted by an 8% gain at Frito-Lay North America, which helped offset a 13% decline at Quaker Foods North America and a 3% decline at Latin America Foods. Sales for PepsiCo Americas Foods rose 4% in the second quarter to $5,112 million from $4,912 million.

“Frito-Lay North America delivered volume and top-line results in line with expectations as it overlapped the ‘20% More Free’ promotion launched in the second quarter of 2009,” PepsiCo said. “Operating profit benefited from improved costs. F.L.N.A. gained salty-snack dollar share in measured channels and unit growth was positive as trends improved in both convenience-and-gas store channel and food service vending accounts.

“Quaker Foods North America posted declines in volume, net revenue and core operating profit largely driven by declines in ready-to-eat cereals. Q.F.N.A. is making investments in innovation and value to refocus and extend the advantages for its hallmark health and wellness brand as PepsiCo seeks to expand its global ‘good for you’ portfolio of products.”

Overall, for the six months ended June 12 PepsiCo had net income of $3,033 million, or $1.87 per share, up from $2,795 million, or $1.78 per share, in the same period a year ago. Net sales rose 28% to $24,169 million from $18,855 million.

Looking ahead, PepsiCo said it expects an 11% to 13% increase in 2010 earnings, which would put earnings at $4.12 to $4.19 per share.
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