July 10 (Bloomberg) -- Pepsi Bottling Group Inc., the world's second-largest soft-drink distributor, said profit rose more than analysts anticipated and increased its earnings forecast on higher prices and demand in Europe.

The shares climbed 3.8 percent to a close at a record.

Second-quarter net income climbed 9.5 percent to $162 million, or 70 cents a share, from $148 million, or 61 cents, a year earlier, the Somers, New York-based company said today in a statement. The results beat analysts' estimates by 7 cents.

The company promoted Pepsi soda in Russia to increase European volume by 6 percent. Pepsi Bottling sold more multipacks of Lipton green tea and vitamin-spiked Aquafina Alive to win drinkers who have cut down on sugary soda. It also lifted prices by 5 percent worldwide, the most in three years, to cover rising sweetener and soda concentrate costs.

``There's a lot to still be gained in Russia, and it's becoming an increasingly important market for them,'' said Lauren Torres, an analyst with HSBC in New York, who rates the shares ``neutral.'' ``The price increase is the most important one that's been put in place in a long time. It's an immediate, quick answer to offsetting cost increases.''

Sales climbed 7.1 percent to $3.36 billion, the company said.

The bottler lifted its full-year earnings forecast to as much as $2.07 a share, from a previous estimate of as much as $1.98. This doesn't include a one-time tax benefit of $45 million that will be taken in the third quarter.

Shares of Pepsi Bottling rose $1.31 to $35.74 at 4 p.m. in New York Stock Exchange composite trading, the highest since the bottler's initial public offering in 1999. They have gained 16 percent this year, compared with an 18 percent increase by larger Coca-Cola Enterprises Inc.

Analysts' Estimates

Thirteen analysts surveyed by Bloomberg estimated average profit of 63 cents a share.

Global selling, delivery and administrative expenses rose 5.2 percent to $1.2 billion on costs to increase operations in Russia and Mexico. In the U.S., related costs were little changed, better than the 3.6 percent increase estimated by Bill Pecoriello, an analyst at Morgan Stanley.

Pepsi Bottling reduced expenses by eliminating some drinks in markets that aren't popular, such as Pepsi Vanilla, said spokeswoman Mary Winn Settino. Distribution costs have dropped as delivery schedules were improved, she said.

Worldwide volume rose 1 percent, helped by gains in Russia where the company sold more Pepsi soda and noncarbonated drinks such as Aqua Minerale, Lipton tea and Tropicana juice. Pepsi Bottling in March created a joint venture in Russia with PepsiCo Inc. to make and distribute drinks, which allows both companies to share the profits and costs of expansion.

U.S. Volume

Sales volume in the U.S. was unchanged as demand for take- home packs of drinks muted a 3 percent decline in more profitable single bottles and cans. Mexico's volume dropped 2 percent as decreases in soft drinks erased gains in bottled water such as Epura and Lipton tea.

The cost of goods per case climbed 6 percent in the quarter on rising expenses for sweetener and concentrated soda flavors.

``What we're really working against is raw material increases, and trying to manage through and be effective in our margin management,'' said Chief Financial Officer Al Drewes in an interview today.

To compensate for the higher costs, the bottler lifted prices per case by 5 percent, the biggest increase since early 2004, said Settino.

Higher Prices

Customers are adjusting to the higher prices ``better than we anticipated,'' Chief Executive Officer Eric Foss said today on a conference call with analysts and investors.

The bottler will start selling a new cherry-flavored soda called Mountain Dew Game Fuel that has 30 percent more caffeine than regular Mountain Dew. The company will also add red tea in Turkey, earl gray tea in Russia and waters called 7 Up H2O and Manzanita Sol H2O in Mexico.

PepsiCo and its bottlers plan to increase marketing for SoBe Life Water, a vitamin-enhanced water, in an effort to woo drinkers away from Coca-Cola Co.'s Glaceau VitaminWater, Foss said.

Promotions for SoBe Life Water may help Pepsi Bottling fill a hole in its beverage lineup because it isn't allowed to distribute PepsiCo's Gatorade sports drinks, Foss said.

About 44 percent of Pepsi Bottling's stock is controlled by PepsiCo, which is the world's second-largest soft-drink maker behind Coca-Cola.

The bottler repurchased 1.8 million shares of stock during the second quarter and has bought back 6.3 million shares year- to-date. Pepsi Bottling has 25 million shares remaining under its existing buyback plan.

To contact the reporter on this story: Mary Jane Credeur in Atlanta at mcredeur@bloomberg.net.

Last Updated: July 10, 2007 17:12 EDT