PepsiCo Poised for Profit Gains - TheStreet



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(PEP) - Get Report

efforts to strengthen its reach into China and other developing countries through larger investment spending may brighten its long-term growth efforts, but could dampen its earnings in 2009.

It is also trying to step up its research and development efforts in health food and drinks as it works to expand its wellness program. One of the world's largest food and beverage producers, PepsiCo will open a long-term lab in New Haven, Connecticut that supports the development of healthy PepsiCo foods and drinks.

PepsiCo expects fiscal 2009 sales to rise by 5% and earnings per share to rise by 5 to 6%, resulting in a new adjusted 2009 earnings per share outlook of between $3.86 and $3.90. The company had previously expected its sales and profits to rise by a percentage in the mid-to-high single digits.

Janney Capital Markets analyst Jonathan Feeney attributed PepsiCo's new outlook to spending on infrastructure investments in China and higher research and development costs.

Given PepsiCo's track record of strong earnings per share growth, these investments should ensure similar profit gains going forward, Feeney said, keeping a buy rating on the stock.

The company reaffirms its target of 11 to 13% growth for core constant currency EPS for fiscal 2010.

This target excludes one-time costs involving PepsiCo's acquisition of its two anchor bottlers,

The Pepsi Bottling Group





, which is due to be completed by the end of the first quarter of 2010.

Upon the closing of the deal,

Dr. Pepper Snapple


will receive an upfront payment of $900 million, whereby PepsiCo will earn the rights to manufacture and distribute Dr Pepper and other Dr Pepper Snapple drinks in territories where they are currently distributed by the bottlers.

PepsiCo is currently trying to sell more carbonated and noncarbonated drinks in China and other developing countries.

PepsiCo stock fell 2.7% to $61.80 at the end of Wednesday's trading session.

-- Reported by Andrea Tse in New York

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