PepsiCo raises profit forecast as N. America snack sales rise

Wed Jul 23, 2014 1:51pm EDT
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By Anjali Athavaley

(Reuters) - PepsiCo Inc's PEP.N higher-than-expected quarterly profit could give the company more ammunition against an activist investor who wants it to separate its snack and beverage businesses.

The maker of Pepsi-Cola and Frito-Lay snacks raised its full-year adjusted earnings forecast on Wednesday and said organic revenue grew 5 percent in its global snacks business, helped by strong sales of Lay's, Doritos and Cheetos chips. It also reported a 2 percent organic sales increase in its beverage business, which includes the Gatorade and Tropicana brands.

The sales increases were partly a result of price hikes that PepsiCo implemented as it launched new products which usually command higher prices. For instance, it has recently rolled out new flavors of Lay's and a new "Baja Blast" Mountain Dew that was previously available only at Taco Bell restaurants. Inflation also prompted price increases in regions including Latin America.

"We feel comfortable that we can sustain our pricing," Chief Executive Indra Nooyi told analysts on a conference call.

PepsiCo shares were up 2.7 percent at $91.59 on Wednesday afternoon on the New York Stock Exchange. The shares have risen 7.5 percent so far this year as of Tuesday's close.

The earnings come as activist investor Nelson Peltz's Trian Fund Management is urging the company to split its more successful snack division from its sluggish beverage business. Peltz said last week that a proxy fight at PepsiCo was a “possibility.”

The California teachers' retirement system, one of the largest pension funds in the United States, has asked PepsiCo to give Peltz a seat on the board, a development first reported in the Financial Times on Wednesday morning. Calstrs owns a $250 million stake in PepsiCo.

Calstrs spokesman Ricardo Duran said in an email that the fund has not taken a position on Peltz's proposed split of the company.   Continued...

Cases of Pepsi are displayed for sale in Carlsbad, California in this file photo taken February 7, 2012. PepsiCo Inc reported a 2 percent fall in second-quarter profit as carbonated soft drink volumes declined 2 percent in North America, July 23, 2014. REUTERS/Mike Blake/Files