PepsiCo’s first-quarter profit rises 26 percent; snack and beverage sales gain overseas

PepsiCo’s 1Q profit rises on international growth

NEW YORK — PepsiCo Inc.’s international growth pushed its first-quarter profit up 26 percent, as people in developing countries bought more of its snacks and drinks.

The company hopes to take that success and run with it, pledging to invest more in its overseas business as it fights stagnation at home and in Europe. It may come up against rival Coca-Cola Co., who plans to do the same in these high growth markets.

In the first quarter, PepsiCo’s North American beverage volume slipped 4 percent, but revenue rose by 32 percent and profit by nearly that much because it bought out its two largest bottlers there and focused on selling more profitable products.

Overall, PepsiCo earned $1.43 billion, or 89 cents per share, beating analyst estimates of 75 cents a share, according to Thomson Reuters.

Revenue climbed 13 percent to $9.37 billion, while the volume of products sold rose 1 percent.

Shares fell $1.31, or 2 percent, to $64.67 in afternoon trading Thursday.

Earlier this week, Coca-Cola credited its first-quarter gains to the billions it is spending in China, India, Brazil and elsewhere to boost manufacturing capacity and marketing.

The world’s two biggest drink makers want to get more of their products in front of more people and turn them into customers for life. In the U.S. and Europe, shoppers are reducing spending and switching to juices and teas.

PepsiCo is building 14 plants to keep up with rising demand in China and plans to keep up the investments through 2015. The company, based in Purchase, N.Y., said it invested more in key markets in the quarter and plans to boost such spending in the second quarter, though it declined to give specifics.

CEO Indra Nooyi said the investments in these countries to build and expand manufacturing plants and add distribution are worth it.

“We don’t look at it as a drag. We look at it as an exciting market with tremendous growth opportunities,” she told investors on a conference call Thursday.

In the first three months of the year, PepsiCo posted double-digit gains in sales of snacks and beverages in India and China.

Analysts say emerging markets represent strong opportunities for growth because people there simply don’t consume as many snacks like Doritos or soft drinks like Pepsi.

There’s probably enough growth available to fuel both Coca-Cola and PepsiCo, said Jim Tierney, portfolio manager at W.P. Stewart, an investment management firm in New York.

“Many of these markets are such young markets that there’s just tons of growth,” he said.

Both Coke and Pepsi are employing similar strategies: looking to pay for overseas expansion with cost savings from consolidating their bottlers.

The bottling industry has typically been a third-party business that makes drinks crafted by PepsiCo and Coca-Cola, and distributes them to retailers. The goal of consolidation is to control distribution, which is key for drink makers because it means less time to put drinks on shelves to keep up with changing shopper tastes. It also means the companies save millions by cutting overlapping costs and operating on a larger sale.

PepsiCo closed in the first quarter on its deal valued at $7.8 billion to buy Pepsi Bottling Group and PepsiAmericas.

Coca-Cola said within days of PepsiCo’s deal closing that it would buy the North American operations of its largest bottler, Coca-Cola Enterprises.