PepsiCo Gets Another Boost From Salty Snacks

(Bloomberg) -- PepsiCo Inc., grappling with a slumping soda business, got another boost from its food operations.

Strong sales of Frito-Lay chips and Quaker oatmeal helped PepsiCo beat per-share profit estimates by 9 cents in the second quarter. The results sent the shares up as much as 4.3 percent Tuesday, the biggest intraday gain in four years.

PepsiCo, like rival Coca-Cola Co., is looking beyond sugary soda to drive growth as Americans pursue healthier diets. PepsiCo's latest quarter is another sign that consumers continue to love its salty snacks: chips like Tostitos and Ruffles have remained popular.

Fixing the struggling North American beverage unit remains a top priority for PepsiCo Chief Executive Officer Indra Nooyi. She's facing a resurgent rival in Coca-Cola, which has been spending heavily on advertising, especially on the top brand.

“We're maniacally focused on getting this business back on track,” she said on a conference call with analysts.

The stock was up 4.1 percent to $112.22 as of 9:52 a.m. in New York. Through Monday, the shares had fallen 10 percent this year, compared with a 3.2 percent decline at Coca-Cola.

Revenue was down 1 percent in PepsiCo North American beverage unit last quarter, while profit slipped 16 percent. The results were hit by higher transportation costs and higher prices for aluminum resulting from tariffs, said Chief Financial Officer Hugh Johnston.

Consumer giants ranging from PepsiCo to Nestle SA are wrestling with changing tastes as shoppers turn away from sugary foods and drinks and seek out healthier fare. That's made it difficult for consumer companies to raise prices, pressuring results across the industry. Consumption of carbonated soft drinks fell to a 32-year low in the U.S. last year, according to Beverage-Digest, a trade publication.

While consumer are shunning soda, chips remain popular with consumers. Profit in the company's Frito-Lay North America unit, which also makes Cheetos and Doritos, was up 5 percent in the quarter.

Core earnings per share were $1.61 a share last quarter, PepsiCo said in a statement. Revenue was $16.1 billion, slightly ahead of estimates.

For now, Frito-Lay is propping up the company, but if that unit were to stumble, PepsiCo could take a hit from investors, according to Ken Shea, an analyst at Bloomberg Intelligence.

“No business is bulletproof,” he said. “It's risky to keep relying on one unit.”

To contact the reporter on this story: Craig Giammona in New York at cgiammona@bloomberg.net

To contact the editors responsible for this story: Anne Riley Moffat at ariley17@bloomberg.net, Cecile Daurat

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