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VOL. 36 | NO. 41 | Friday, October 12, 2012

PepsiCo's profit dips amid turnaround push

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NEW YORK (AP) — PepsiCo Inc.'s net income dipped 5 percent in the third quarter, as the food and beverage maker continued to pour more money into bolstering its flagship brands.

The company, which makes Frito-Lay snacks, Tropicana juice and Quaker Oats, stood by its guidance for the year, however, and profit came in above Wall Street expectations.

As part of a turnaround push that began this year, PepsiCo is working to raise the stature of its key brands, such as its namesake cola and Gatorade sports drink. The company, based in Purchase, N.Y., is betting that this will help cultivate customer loyalty and make the products more resilient to competition and price hikes.

In its flagship beverages unit in the Americas, however, the company said sales volume fell 3 percent during the period. Operating profit also fell as a result of higher costs for ingredients and stepped up marketing. After losing market share to Coca-Cola in recent years, the company enlisting pop stars and athletes to market Pepsi.

Frito-Lay North America saw volume edge up by 1 percent and Quaker Oats saw a 2 percent increase. But the operating profits of both units were pressured by higher costs for ingredients and marketing. Volumes for the Latin America foods division and the Asia, the Middle East and Africa unit saw double-digit gains.

Overall, the company's core operating profit declined 8 percent, reflecting higher costs for ingredients, increased advertising and marketing and higher pension expenses.

For the period ended Sept. 8, PepsiCo said it earned $1.9 billion, or $1.21 per share. That's compared with $2 billion, or $1.25 per share, a year ago. Earnings from core operations were $1.20 per share, better than the $1.16 per share analysts expected.

Total revenue fell 5 percent to $16.65 billion, partly because of unfavorable currency exchange rates and the refranchising of its business in China and Mexico. That means that revenue in those countries is now recorded by PepsiCo's local partners.

Analysts expected revenue of $16.96 billion.

When excluding the impact of unfavorable currency exchange rates and other structural changes, the company said its revenue rose by 5 percent in the quarter. The increase reflected a 1 percent jump in sales volume and 4 percent bump in pricing.