This story has been updated from a previous version.
NEW YORK (TheStreet) -- People may be sick of fizzy soda, but they are in the mood to buy snacks with the money left over from savings at the gas pump.
The performance of the company's Frito-Lay snack division was a major ingredient in Pepsi's better-than-expected quarterly earnings. For the fourth quarter, Pepsi's earnings, excluding one-time items, came in at $1.12 a share, 4 cents above Wall Street expectations, and investors sent the shares higher by more than 2% in trading Wednesday.
"We really do feel like we are rolling at this point," said PepsiCo Executive Vice President and CFO Hugh Johnston in an interview. Johnston pointed to strength in Pepsi's big snack brands such as Lay's, Doritos, Cheetos and Tostitos, as well as more premium offerings, such as Stacy's Pita Chips and Sabra Hummus.
Frito-Lay's North American sales volume rose 2% in the fourth quarter, while the segment's organic operating income improved by about two times revenue growth, which clocked in at 3.5%. It marked a solid end to a year for the snacks division of Pepsi in which overall organic revenue improved 3%. That growth offered a sign of what could come as consumers gain confidence that cheaper gas will effectively boost their disposable income.
"We sell an awful lot in gas and convenience stores, and when customers fill their tank and have extra money in their wallets, they tend to go into the store and more often than not buy us," said Johnston.
Some of the snack businesses that were integral to Pepsi's quarter, and contained in the broader Frito Lay portfolio, are ones that activist investment firm Trian Fund Management, led by Nelson Peltz, has been agitating Pepsi to spin-off since the summer of 2013. What was heralded as a truce between the two companies came on Jan. 16, where Pepsi said it would add William R. Johnson to its board. Johnson, who is an advisor to Peltz's firm, will also serve as an independent director at Pepsi.
Another factor for the snack division's performance is expansion into new products.
New products represented 7% of total sales at Pepsi a few years ago, according to Johnston. Now that number stands at 9%, as the company has been growing its research and development spending at a faster rate than sales.
Research and development costs were $665 million in 2013, an increase of 20% year over year. Johnston did not disclose what the total expenditure was for 2014, nor the estimated amount for 2015.
Strong sales of snacks at Pepsi are helping to balance the notoriously competitive forces in the traditional soft drinks business that is weighing on sales.
Pepsi's carbonated soft drink volume in North America fell 2% in the fourth quarter, while success with juices like Tropicana and Naked and sports drink Gatorade helped to lift non-carbonated volumes by 4%.
According to Pepsi, it increased liquid refreshment beverage value share in measured channels in the U.S., and held value share in both liquid refreshment beverages and carbonated soft drinks. Carbonated soft drinks represent about 25% of revenues in the Pepsi Americas Beverages segment as opposed to 75% in Coca-Cola's competing segment.
Both Coke and Pepsi have sought to improve the economics of their drinks businesses in a similar manner for the last several years. The companies have debuted soda in smaller cans, soda sweetened with real sugar, and non-carbonated beverages with more creative flavors and packaging.
Pepsi has been quiet on the acquisition front since shelling out roughly $5.4 billion in 2010 for Russian dairy products and fruit juice maker Wimm-Bill-Dann. But Pepsi has the financial firepower to buy a strategic asset to bolster the snacks business.
"We feel like we have the portfolio in a pretty good spot right now," said Johnston, adding "we'll see what comes along -- we are constantly out there talking to basically everyone."
Johnston was non-committal about whether an acquisition of any kind, either in snacks or beverages, would occur in 2015. The company continues to focus on productivity measures, share repurchases and dividends.
Pepsi hiked its dividend by 7.3% on Tuesday, and announced a new five-year $12 billion share repurchase program. It also committed to $1 billion in productivity savings in 2015.
Pepsi generally allocates about $500 million a year or so to small "tuck-in" types of deals, according to Johnston.