Pepsi Earnings Beat Flat Expectations

The stock, which has retreated recently, gained 3.6% on news of the third-quarter profit of 34 cents a share.
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Buoyed by a strong performance from its

Frito-Lay

snacks business,

PepsiCo

(PEP) - Get Report

Wednesday reported a 7% increase in its third-quarter earnings, exceeding analysts' expectations by a penny.

Wall Street reacted with mild approval, pushing PepsiCo's stock up 1 1/8, or 3.6%, to 32 9/16. Still, analysts expressed concerns about the company's soft-drink business, where operating profit declined.

"People knew that the numbers were going to be disappointing, and they came in slightly less than expected," Skip Carpenter, an analyst with

Donaldson Lufkin & Jenrette

, said of the beverage figures. "What we need to know is, When do we get to see some improvement in their soft-drink business?" DLJ hasn't done recent underwriting for Pepsi, which Carpenter rates market perform.

Net income for the third quarter ended Sept. 4 rose to $507 million, or 34 cents a diluted share, from $475 million, or 32 cents a share, in the comparable 1998 quarter. Revenue rose 6%, to $4.6 billion from $4.3 billion a year earlier. All results were reported on a pro forma basis, excluding one-time items and assuming that significant transactions such as the company's bottling spinoff had occurred in both periods.

Behind the earnings gain was the performance of the company's Frito-Lay division, where operating profit rose 11% to $516 million. Operating profits at Tropicana, which PepsiCo acquired in August 1998, jumped 54% to $37 million.

But third-quarter operating profit at the beverage division slipped 14% from a year ago to $229 million.

"Solid sales growth generated higher earnings and EPS, reflecting superb performances at Frito-Lay and Tropicana at a time when Pepsi-Cola's North American concentrate business faced a more challenging environment," Roger Enrico, PepsiCo's chairman and CEO, said in a statement.