Pepsi Bottling Beats Street Despite Light Volume

Pepsi Bottling Group reported a higher-than-expected quarterly profit asprice increases and stronger U.S. sales of carbonated softdrinks helped offset declining demand for pricier beverages.

Photo: Mashroms Pepsi

Falling prices for aluminum also helped boost earnings, and the company said this year's profit would probably come in at the high end of its forecast.

Despite the improving soft-drink trends, the largest bottler of PepsiCo beverages said the volume of drinks sold had fallen 1 percent in the United States and Canada and 4 percent overall, weaker than analysts anticipated.

Stifel Nicolaus analyst Mark Swartzberg said he had expected an overall decline of just 2.5 percent, with U.S. and Canadian volume up 2 percent.

Shares of Pepsi Bottling fell 0.5 percent.

"The consumer is trading down from higher-priced teas, sports drinks, coffees to carbonated soft drinks that offer better value," said Bill Pecoriello, chief executive of ConsumerEdge Research.

That trend could also help Pepsi's rivals, especially Dr Pepper Snapple , as consumers switch back to sodas. Dr Pepper has a higher exposure to carbonated soft drinks than Pepsi and Coca-Cola , which sell a wider variety of beverages.

Dr Pepper has beaten Wall Street's expectations for two quarters in a row as consumers looking to curb spending choose its lower-priced soft drinks such as A&W and 7UP.

PepsiCo, the world's second-largest soft-drink maker behind Coca-Cola, offered $6 billion to buy the remaining stakes in its two largest bottlers, Pepsi Bottling and PepsiAmericas , in April. The bottlers have rejected Pepsi's offer as too low.

Pepsi Bottling did not give any update on PepsiCo's buyout bid, first made in April. Earlier Wednesday, PepsiCo CEO Indra Nooyi said the offer was "still out" to Pepsi Bottling and smaller bottler PepsiAmericas Inc.

The bid of $29.50 per share is below Pepsi Bottling's trading price of $33.48 on Wednesday morning.

Pepsi Bottling has said the offer was low because its performance was improving as consumers seek cheaper drinks and costs for raw materials like aluminum, fuel and corn fall.

Pecoriello said he expected the two sides to announce a deal over the next couple of weeks, with Pepsi raising its bid to the upper $30s for Pepsi Bottling.

Profit Up, Expenses Down

Pepsi Bottling's net income rose to $211 million, or 96 cents a share, in the second quarter ended June 13 from $174 million, or 78 cents a share, a year earlier.

Excluding items, Pepsi Bottling earned 78 cents a share. topping the analysts' average forecast of 73 cents, according to Reuters Estimates.

Net revenue fell 7 percent to $3.27 billion, lighter than the analysts' average estimate of $3.44 billion.

Selling, delivery and administrative expenses decreased 10 percent.

Pepsi Bottling, which has a "positive" outlook for the remainder of 2009 and beyond, said it expected full-year earnings toward the high end of its prior outlook of $2.30 to $2.40 per share.

"We absolutely think they have more firepower as they negotiate with PepsiCo to raise their estimates again if they have to," said Pecoriello, who said Pepsi Bottling could increase its full-year earnings outlook by another 10 cents per share.

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