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PepsiCo tops expectations

pepsiPepsiCo’s third quarter profit topped Wall Street expectations as the maker of Frito-Lay snacks and Mountain Dew soda raised prices and trimmed costs.

Profit plunged, however, after PepsiCo wrote down investments in Venezuela, taking a charge of $US1.4 billion ($A1.95 billion), or 92 US cents per share.

Snack volume in North America rose by 0.5 per cent, while pricing pushed up sales for the division by two per cent. The company has been increasing consumer choices on sizes, offering Lay’s potato chips in a bag that is two ounces smaller than the traditional 10-ounce bag.

Tom Greco, the head of Frito-Lay North America, said last month the company is shaking up the bag because of shrinking US households, but also to improve margins for retailers.

The company’s drinks unit for North America, which includes Gatorade and Aquafina water, also had a volume increase of three per cent in the quarter, while higher pricing pushed up revenue by 5 per cent.

Chief financial officer, Hugh Johnston, said the volume increase in the region was driven by a nearly 10 per cent rise in non-carbonated drinks, while sodas saw a 1.9 per cent decline.

Within sodas, Johnston said full-calorie drinks declined one per cent while diet sodas fell 6.5 per cent.

Both Coca-Cola and PepsiCo are facing an ongoing decline in soda consumption in the US, and more recently, a move away from traditional diet sodas.

Chief executive, Indra Nooyi, noted the beverage industry is shifting away from sodas to non-carbonated drinks such as bottled teas.

“I think focusing on just (carbonated soft drinks) is a thing of the past,” she said.

PepsiCo raised its 2015 earnings growth target, citing its year-to-date results and updated outlook. But the company continues to wrestle with a strong US dollar and charges related to operations in Venezuela, a country suffering from hyperinflation. PepsiCo’s profit fell in the quarter.

For the period ended September 5, PepsiCo earned $US533 million, or 36 US cents per share. That compares with $US2.01 billion, or $US1.38 per share, a year earlier.

The current quarter included the Venezuela-related charge of 92 US cents per share. Stripping out that charge and other items, earnings were $US1.35 per share, which was 9 US cents better than Wall Street had expected, according to a poll by Zacks Investment Research.

Total revenue declined to $US16.33 billion from $US17.22 billion, stung by the impact of foreign currency translation. Revenue improved for the North American Beverages and Frito-Lay North America segments, but fell for the remaining units.

Venezuela, which has been trying to get control of hyperinflation for years, is using capital controls that have created issues for corporations.

PepsiCo said it will no longer include the results of its local Venezuelan subsidiaries and joint venture in its financial statements and will include only revenue relating to those operations to record cash received for those sales.

Even with the charges, revenue edged out Wall Street expectations of $US16.19 billion.

PepsiCo now anticipates a nine per cent increase in 2015 core earnings per share growth, on a constant currency basis. Its prior outlook was for an eight per cent rise.

AP s

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