Pepsico Jumps After Topping Estimates

The company also announced a plan to establish two new regional companies for its Frito-Lay division.
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Updated from 10:55 a.m. EST

Shares of

Pepsico

(PEP) - Get Report

jumped on Wednesday after the soft drink and snack food giant announced a higher-than-expected 28% increase in fourth-quarter earnings and unveiled plans to establish two new regional companies for its

Frito-Lay

division.

The market also cheered the announcements, sending Pepsico up 1 5/16, or 4%, to 34 5/8. (It closed up 11/16, or 2.1%, at 34.)

Donaldson, Lufkin & Jenrette

upped its rating for the company to buy from market performance on the heels of the news, while

Merrill Lynch

maintained its long-term buy rating.

The Purchase, N.Y.-based company reported fourth-quarter pro-forma earnings of $494 million, or 33 cents a diluted share, compared with $391 million, or 26 cents a share, in the year-earlier period. Wall Street had expected earnings of 31 cents, based on a poll conducted by

First Call/Thomson Financial

.

Tim Swanson, an analyst at

A.G. Edwards & Sons

, said the strong earnings signaled that the company was getting back on track after a string of disappointing earnings stemming back to its restructuring program that began in 1997.

"The last few years have been pretty tumultuous for Pepsi and hopefully we've gotten to the point where management starts meeting or beating expectations," said Swanson, who rates Pepsico an accumulate. His firm has not done any underwriting for the company.

The strong results were attributed to better-than-expected results at its

Pepsi-Cola North America

division and robust growth in its

Frito-Lay

and

Tropicana

units as well as to good margins.

Total revenues for the quarter rose 6%, to $5.7 billion.

The results were reported on a pro-forma basis that assumes certain transactions concerning the

Pepsi Bottling Group

,

Whitman

,

PepCom

and Tropicana occurred on the first day of fiscal 1998 and excludes unusual items. Earnings are reported on a pro-forma basis in order to facilitate quarterly and yearly comparisons.

Pepsico's plans to establish two new regional companies for its Frito-Lay division,

Frito-Lay Europe, Middle East and Africa

and

Frito-Lay Latin America, Asia Pacific and Australia

, were also viewed favorably.

Skip Carpenter, an analyst at Donaldson, Lufkin & Jenrette, which has not done any underwriting for the company, said the new divisions would help the company to improve its regional marketing efforts.

"For Frito-Lay to get critical mass, this is more appropriate. Different cultures have different tastes and different profiles," said Carpentener, noting that

Coca-Cola

(KO) - Get Report

also structured itself in order to cater to regional preferences.

Until now, Frito-Lay, which controls more than 50% of the salty snack market in the U.S., has been divided into two units,

Frito-Lay North America

and

Frito-Lay International

.

Steven Reinemund, Pespico's president and chief operating officer, said the new move "recognizes the size, importance and enormous potential these divisions represent as significant stand-alone businesses."

The company also announced plans to introduce Fruitworks, a juice-based drink, sometime in 2000.