PepsiCo Sticks by Beverage Unit Despite Struggles

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EARNS PEPSICO
Paul Sakuma/AP
By CANDICE CHOI
and MICHELLE CHAPMAN


NEW YORK -- PepsiCo plans to stick by its struggling North American beverage unit, with hopes that the introduction of naturally sweetened, lower-calorie beverages will help revive soft drink sales.

The company has been under pressure to spin off the drink business in favor of its stronger Frito-Lay snack unit, most notably by activist investor Nelson Peltz of Trian Fund Management.

The calls for a split come as PepsiCo's (PEP) drinks, which include Mountain Dew, Tropicana and Aquafina, have lost ground to bigger rival Coca-Cola (KO) in recent years.

But PepsiCo said Thursday that it concluded after an "exhaustive" review involving "bankers and consultants" that it already has the best possible structure for its North American beverage unit.

"That decision has been made for a good period of time going forward," Chief Financial Officer Hugh Johnston said in a call with reporters.

That strength in snacks and weakness in drinks played out again in the company's fourth quarter, with Frito-Lay delivering volume growth of 3 percent in North America.
Volume for carbonated soft drinks, by contrast, fell in the "mid-single digits" despite stepped up marketing. Non-carbonated drinks, which include Gatorade and Aquafina, increased in the "low-single digits."

Still, CEO Indra Nooyi stressed that PepsiCo's drinks and snacks are complementary to each other. And she noted that the company plans to test new natural sweeteners in carbonated drinks this year that could help improve results.

Dr Pepper Snapple Group Inc. also said this week that it plans to test naturally sweetened lower-calorie sodas this year, given the growing concerns customers have about the artificial sweeteners used in diet sodas. Coca-Cola, which introduced a similar concept in Argentina last year, reports next week.

PepsiCo also announced a five-year, $5 billion cost-cutting program that will include investments in automated manufacturing and factory closings.

For the period ended Dec. 28, the company earned $1.74 billion, or $1.12 a share. That compares with $1.66 billion, or $1.06 a share, a year ago.

Excluding charges and other items, earnings were $1.05 a share, topping the $1 a share Wall Street expected.

Revenue rose 1 percent to $20.12 billion, helped by results in Latin America and Asia. Analysts on average were looking for revenue of $20.1 billion, according to FactSet.

For the year, PepsiCo earned $6.74 billion, or $4.32 a share. In the prior year it earned $6.18 billion, or $3.92 a share. Adjusted earnings were $4.37 a share.

Annual revenue climbed 1 percent to $66.42 billion.

PepsiCo's annual dividend will be raised by 15 percent to $2.62 a share and boost 2014 share repurchases to about $5 billion.

PepsiCo's stock was down $2.49 to $79 in noontime trading on the New York Stock Exchange.


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