Oct. 11 (Bloomberg) -- PepsiCo Inc., the worlds second- largest maker of snacks and soft-drinks, said third-quarter profit rose 17 percent and sales climbed 11 percent as it sold healthier chips and food tailored to local tastes in India and Russia.

The stock dropped the most in seven months after PepsiCo forecast earnings growth for 2008 at the slowest pace in six years and Gatorade volume declined in North America.

Chief Executive Officer Indra Nooyi has pushed the second- largest maker of snacks and soft-drinks to add regional flavors and low-calorie offerings. Products that led gains included lentil snacks in India, mushroom-flavored Lay's in Russia and whole-grain SunChips in the U.S.

``They understand that you've got to cater to local tastes in these markets,'' said Bill Schultz, chief investment officer at McQueen Ball & Associates. PepsiCo is among the Bethlehem, Pennsylvania-based firm's largest holdings.

Third-quarter net income increased to $1.74 billion, or $1.06 a share, from $1.49 billion, or 89 cents, a year earlier. Earnings beat analysts' estimates by 3 cents. Sales rose 11 percent to $10.2 billion, the Purchase, New York-based company said today in a statement.

Profit next year will increase ``at least 10 percent,'' Nooyi told investors on a conference call. Some analysts were more optimistic. The average estimate in a Bloomberg survey is for profit of $3.72 a share.

PepsiCo shares declined $1.83, or 2.5 percent, to $71.77 at 4:01 p.m. in New York Stock Exchange composite trading. The stock is up 15 percent this year.

Analyst Estimates

A drop in Gatorade volume and sales of Lay's chips in North America stirred concern among some investors, said Bonnie Herzog, an analyst at Citigroup Inc., who has a ``buy'' recommendation on the stock.

Analysts estimated earnings of 96 cents a share, the average of 11 projections in a Bloomberg survey. They estimated sales of $9.94 billion.

Net income was boosted by a tax benefit of $115 million, or 7 cents a share, related to foreign taxes. Excluding that gain, PepsiCo said earnings were 99 cents a share.

Gatorade sales in North America dropped by a ``mid-single digit,'' which Nooyi said was because of cool, rainy weather in some parts of the U.S. in late July and August. It was the third time in the past four quarters Gatorade posted declines.

G2, SoBe

``As we came into late July and August, the weather turned really ugly. Gatorade doesn't do well in cold and rainy weather,'' Nooyi said in an interview. ``As the weather improved and the warm days started up again, Gatorade trends have improved very nicely.''

PepsiCo plans to add lower-calorie Gatorade G2 sports drinks this year, plus caffeinated Propel water and new flavors of vitamin-spiked SoBe Life Water. The beverages are an attempt to woo consumers from Glaceau Vitaminwater, which Coca-Cola bought for $4.1 billion in June.

G2 will give ``a very nice bump'' to Gatorade volume in the coming quarters, Nooyi said. The sports drinks start shipping in November.

PepsiCo is considering having celebrity endorsements for SoBe Life Water, she said. Pitchmen for Coca-Cola's Glaceau include rapper 50 Cent, past ``American Idol'' winner Kelly Clarkson and Miami Heat basketball star Shaquille O'Neal.

PepsiCo, which lags behind Nestle SA in snacks and beverages globally, also promoted Aquafina water and Lipton tea in North America during the third quarter as soda volume fell for the eighth straight quarter as consumers cut back on sugary drinks. PepsiCo trails Coca-Cola Co. in soda sales.

Salsa and Cinnamon

Global snack shipments rose 4.5 percent on gains in India, Russia and Mexico, and sales of Doritos and new SunChips flavors including cinnamon and salsa in North America.

PepsiCo is boosting overseas sales with acquisitions. In early October, it agreed to buy Brazil's Comercio de Doces Lucky Ltda. for an undisclosed price to add Torcida and Fofura snacks. PepsiCo and bottler PepsiAmericas Inc. bought Ukrainian juicemaker Sandora LLC for $542 million in June to expand in Eastern Europe.

``Pepsi has been very innovative with healthier snacks and regional flavors,'' said Marc Davis, a vice president at Tradition Capital Management, before the results were announced. The Summit, New Jersey-based firm holds PepsiCo shares.

Beverage shipments increased 3.5 percent globally, led by Pepsi and 7-Up sales in China and the Middle East. In North America, Lipton and Aquafina gains muted a 3 percent drop in soda.

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

Last Updated: October 11, 2007 17:31 EDT