PepsiCo’s 3rd-qtr net income edges up 12 pct; lowers top end of outlook on currency exchange

PepsiCo’s 3Q profit rises, but narrows guidance

NEW YORK — PepsiCo Inc.’s third-quarter net income rose 12 percent on strong sales gains in drinks and Frito-Lay snacks abroad, but shares fell after the company lowered the top end of its guidance because of investments to expand its presence overseas.

Shares fell $2.01, or 3 percent, to $65.10 in heavy volume Thursday.

The company also said it expects to be hurt by changes in currency exchange rates, which happens to businesses with interests abroad.

Pepsi has been expanding in growing markets like China and India to hook shoppers as they get more money. The moves help bolster weaker performance in developed regions like the U.S. and Western Europe, where people are limiting their spending in down economies.

The stock fell Thursday because short-term investors aren’t pleased with the increased spending, which could weaken results, said Jim Tierney, chief investment officer at W.P. Stewart, an investment management firm in New York.

But long-term investors are pleased.

“It really is the battle between short-term thinking and long-term thinking,” he said. “If you think long-term about this, you’re happy they are continuing to invest in the future.”

Investors focused on the guidance and investments during a conference call with executives. CEO Indra Nooyi stood by the company’s long-term focus.

“We are going to make those investments because we have to make sure that we’re looking at innovation, 24, 36 months out,” she said.

In the present, the company’s results met expectations and continued to benefit from PepsiCo’s buyout of its two largest North American bottlers earlier this year.

Pepsi earned $1.92 billion, or $1.19 per share, in the three months ending Sept. 4. That compares with earnings of $1.72 billion, or $1.09 per share, in the same period last year.

Without one-time items including charges to integrate its bottlers, the company earned $1.22 per share, in line with analyst estimates, according to Thomson Reuters.

Revenue rose 40 percent to $15.51 billion on gains abroad and the bottler acquisition, beating analyst estimates of $15.38 billion.

PepsiCo spent $7.8 billion to buy its bottlers this year so it could better control distribution and be quicker to market with new products. Shoppers have been pushing away from soft drinks because of health concerns and turning to juices and teas. They’re also not buying as much because of the economic downturn, so controlling the bottlers helps Pepsi keep up with these changing tastes.

The company, based in Purchase, N.Y., reported revenue gains across all of its business units, including beverages around the world and snacks, except for Quaker, which has been struggling in the U.S.

At home Pepsi plans to spend more to support PepsiMax, its zero-calorie version of Pepsi; other beverages; and its Quaker products, including launching new versions of its oatmeal with a thicker texture.

Pepsi had expected earnings per share to rise between 11 percent and 13 percent for the full year, but cut the top end for a new range of 11 to 12 percent. Pepsi also expects the drag of foreign currency to hurt earnings by 1 percentage point, so it expects core earnings per share to range from 10 to 11 percent growth. Revenue from foreign countries can be affected by fluctuations in exchange rates when they are converted back into U.S. dollars.

Nooyi said Pepsi is seeing improvements in the economic environment, but said it’s clear economic uncertainty and high unemployment are limiting economic recovery.

She said weakness is persisting in the U.S. and Western Europe, but Pepsi is seeing healthy shopper spending in emerging markets such as China, India and Brazil.

Some 40 percent of company revenue comes from outside the U.S. and Canada.

Pepsi announced it was creating a new Global Nutrition Group to help it create new products and cut sodium, sugar and certain fats across its portfolio, including chips in its Frito-Lay division. Earlier this year, the company said it was setting out to triple its sales of healthier fare in the next decade to $30 billion, as it feeds into people’s desire for healthier products.

The nutrition group will be based in Chicago. The company’s chief scientific officer, Mehmood Khan, has been named CEO.