PepsiCo Profit Misses View; To Cut 3,300 Jobs

PepsiCo reported a quarterly profit that missed Wall Street forecasts and cut its full-year outlook, hurt by an economic slowdown that flattened soft drink demand and a relatively stronger U.S. dollar.

AP

PepsiCo also said Tuesday it would cut 3,300 jobs, or roughly 1.8 percent of its work force, as part of a plan to save more than $1.2 billion over three years.

The company's shares fell more than 7 percent in early morning trading.

The maker of Pepsi-Cola drinks, Frito-Lay snacks and Quaker foods did not give a forecast for 2009, a fact that also weighed on shares due to investor uncertainty about the next year, said Morgan Stanley analyst William Pecoriello.

A nationwide housing slump, credit crunch and job losses have meant consumers were eating less at restaurants, cutting back on trips to gas stations or convenience stores and buying fewer items such as bottled water.

The changing habits have taken a toll on beverage sales, which is viewed as a discretionary purchase by many.

"The beverage business was clearly the soft spot. The whole category has continued to be soft this year," PepsiCo Chief Financial Officer Richard Goodman said in an interview.

"The domestic beverage business is at a historically low level. I don't think there's been another year in which the industry as a whole has actually seen a volume decline, which is what we've seen," he added.

Pepsi said that some 40 percent of the jobs it will cut will come from closing up to six plants and other actions that will be announced by the end of the year.

Most of the job cuts will occur in the fourth quarter. Pepsi expects to incur a related charge of $550 million to $600 million.

Net income fell to $1.58 billion, or 99 cents per share, in the third quarter that ended on Sept. 6, from $1.74 billion, or $1.06 per share, a year earlier.

Excluding losses on commodity hedges, earnings were $1.06 per share. Analysts on average were expecting $1.08, according to Reuters Estimates.

Yet quarterly revenue rose to $11.24 billion from $10.17 billion, driven by strength at Frito-Lay.

• Video: Reaction from Mark Swartzberg, Stifel Nicolaus beverage analyst.

Goodman said Pepsi's global sales for September were consistent with year-to-date numbers, and therefore were not directly impacted by a widening crisis in financial markets.

Citing a recent strengthening in the value of the U.S. dollar, the company lowered its 2008 earnings outlook to a range of $3.67 to $3.68 per share, from a prior forecast of at least $3.72 per share, excluding items.

Goodman said the change in outlook was entirely due to a recent surge in the value of the U.S. dollar versus other currencies and therefore was still uncertain.

"It's a little bit hard to tell exactly where we're going to be and that's why we said at current exchange rates, that the impact would be about 4 or 5 cents per share. That might change between now and the end of the year," Goodman said.

Pepsi shares fell 4.2 percent to $59.20 in premarket trading from their close of $61.77 on Monday.

Copyright 2008 Reuters. Click for restrictions.