PepsiCo's 1Q profit rises 26% on international growth

By EMILY FREDRIX (AP)

NEW YORK — Strong sales of PepsiCo Inc.'s snacks and drinks in developing markets helped its first-quarter profit rise 26 percent, beating analyst estimates.

Frito-Lay North America snacks sales rose slightly, while sales of snacks and beverages posted double-digit gains in India and China, Pepsi said Thursday. Beverage sales volume was soft in the U.S. and Europe as shoppers reduce spending and switch to juices and teas.

The international gains mirrored rival Coca-Cola Co.'s results earlier in the week. Coca-Cola credited the billions it is spending in countries such as China, India and Brazil to boost manufacturing capacity and marketing for the improvements.

The world's top two beverage makers are racing to ramp up in these countries as their economies develop and lure buyers who can be lifelong customers. Such high-growth markets are increasingly important to the companies as they shy away from the stagnant U.S. and European markets, where shoppers are reducing spending and switching to juices and teas. Analysts say these countries represent strong opportunities for growth because people there simply don't eat as many of these snacks like Doritos or drink soft drinks like Pepsi.

CEO Indra Nooyi said the investments made 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.

The company, based in Purchase, N.Y., said it made more investments in key markets such as China and plans to increase its spending on infrastructure and research and development in the second quarter, though it declined to give specifics.

PepsiCo can plow savings from its buyout of its two largest North American bottlers in the quarter into growth in these new areas. It cited cutting costs in overlapping corporate functions, supply chain and other areas as benefits it is already seeing from the $7.8 billion buytout of Pepsi Bottling Group and PepsiAmericas.

For the first three months of the year, PepsiCo earned $1.43 billion, or 89 cents per share.

Analysts expected earnings 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.

Profit in the company's North American beverages improved partly because of the company's purchase of its bottlers in the quarter. The goal of the deal 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 can reap millions in savings.

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.

Pepsi said volume slipped 4 percent for its North American beverages in the quarter, but revenue rose by 32 percent and profits by nearly that much because of the acquisitions and focusing on selling more profitable products.

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