September 30, 2008 / 12:17 PM / 9 years ago

UPDATE 3-Pepsi Bottling 3rd-quarter profit tops view

(Adds stock activity, comments from conference call, analysts)

By Martinne Geller

NEW YORK, Sept 30 (Reuters) - Pepsi Bottling Group Inc PBG.N posted a better-than-expected quarterly profit on Tuesday and raised the low end of its full-year earnings outlook, sending its shares up about 3 percent.

The results were largely in line with an update the company gave earlier this month, according to JP Morgan analyst John Faucher. He attributed the earnings beat to a lower tax rate and fewer shares outstanding.

The largest bottler of PepsiCo Inc (PEP.N) beverages said net income for the third quarter ended Sept. 6 was $231 million, or $1.06 per share, down from $260 million, or $1.12 per share, in the year-ago period, when profit included a gain of 14 cents per share.

Analysts on average were expecting $1.04 per share, according to Reuters Estimates.

Revenue rose 2.3 percent to $3.81 billion for the bottler, which operates in the United States, Canada, Greece, Mexico, Russia, Spain and Turkey.

The weak U.S. dollar, which boosts the value of international sales, contributed about 3 percentage points of growth to revenue and operating income, the company said.

Worldwide revenue per case rose 9 percent as the company was able to raise prices on its drinks.

Pepsi Bottling, like other beverage companies, has had difficulty in recent quarters as consumers cut back on discretionary spending in the face of high gasoline prices and a weakening economy. This has led people to cut down on soft drink buys, especially the more impulse-driven purchases of cold drinks from gasoline stations and convenience stores.

ECONOMIC CONTAGION

But in the third quarter, signs emerged that the economic malaise of the United States was spreading around the world, the company said.

Worldwide sales by volume fell 6 percent, driven by a 9 percent decline in Mexico and 6 percent declines in the United States and Canada as well as Europe.

European beverage sales “got off to a good start in the first quarter of the year, began to slow a little bit in the second quarter, and this slowdown continued in the third quarter, due to a variety of macroeconomic factors, ranging from near-term economic volatility and food inflation in Russia, to fallout from the real estate situation in Spain,” said Chief Executive Eric Foss.

“Similarly, the macroeconomic environment in Mexico has been slowing,” he added.

With the biggest financial crisis since the Great Depression slamming credit markets and worrying analysts about the fate of companies with near-term debt maturities, Pepsi Bottling offered some reassurance.

Responding to an analyst’s question about its $1.3 billion of senior notes maturing in February 2009, Chief Financial Officer Al Drewes said the company is looking to prefund the debt, or sell debt early to fund its refinancing.

“We’re working with some banks on doing that and I‘m optimistic that that’s going to go out in the fourth quarter of the year,” Drewes said. “If it doesn‘t, we have the ability to bridge ourselves until the markets stabilize.”

The bottler said it now expects 2008 earnings per share to range from $2.32 to $2.38, compared with a prior forecast that called for $2.30 to $2.38.

The company left its revenue target unchanged, saying it still expects revenue growth in the mid-single digits.

Analysts on average were expecting 2008 profit of $2.33 per share on revenue of $14.25 billion, according to Reuters Estimates.

Pepsi Bottling shares currently trade at about 12 times earnings estimates for the current year, according to Reuters Estimates. That is a slight premium to rival Coca-Cola Co’s (KO.N) largest bottler, Coca-Cola Enterprises Inc CCE.N, which has a trading multiple of 11.6.

Pepsi Bottling shares were up 83 cents, or 3 percent, at $28.90 on the New York Stock Exchange. (Editing by Gerald E. McCormick, Dave Zimmerman)

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