PepsiCo Profit Tops Analysts’ Estimates as Peltz Hovers
PepsiCo Inc. (PEP), the food and beverage company that investor Nelson Peltz wants to split up, posted third-quarter profit that topped analysts’ estimates as sales of snacks gained in the U.S. and Latin America.
Net income in the three months ended Sept. 7 rose 0.6 percent to $1.91 billion, or $1.23 a share, from $1.9 billion, or $1.21, a year earlier, Purchase, New York-based PepsiCo said today in a statement. Profit excluding some items was $1.24. The average estimate of 15 analysts surveyed by Bloomberg was $1.17.
PepsiCo’s increased snack sales bolster Chief Executive Officer Indra Nooyi’s case against Peltz, whose Trian Fund Management LP has pressured her to acquire cookie maker Mondelez International Inc. (MDLZ) to boost value. The company’s lagging drinks performance in the U.S. may give Peltz ammunition for his other idea -- splitting beverages from food.
“The snack franchise has really probably never been stronger,” Jack Russo, an analyst with Edward Jones & Co. in St. Louis, said in a telephone interview. “Beverages are continuing to struggle, but the beauty of this story a lot of times, as you’ve seen in this quarter, is the fact that they have a food and beverage business, and one, if it’s stronger, can offset the other if it’s weaker.”
Russo recommends buying PepsiCo shares.
PepsiCo, the world’s largest snack-maker and second-largest soft-drink maker, rose 2.1 percent to $82.27 at the close in New York. The shares have advanced 20 percent this year, compared with a 21 percent gain for the Standard & Poor’s 500 Index.
Total sales rose 1.5 percent to $16.9 billion. Analysts estimated $17 billion, on average. Revenue from Frito-Lay and other snacks in the Americas rose 7 percent, excluding the effects of acquisitions, divestitures and foreign-currency fluctuations.
Revenue on that basis in the company’s Americas beverages unit slid 1.5 percent. Sales volume for the business fell 4 percent, steeper than the 2 percent decline estimated by John Faucher, an analyst at JPMorgan Chase & Co. in New York.
Chief Financial Officer Hugh Johnston said today on a conference call with reporters that the U.S. government’s partial shutdown hasn’t affected consumers’ spending habits and that the company expects lawmakers to resolve the impasse.
“There are certain pockets around the country where federal workers have been furloughed, and that does create the potential for some disruption, but we haven’t seen that yet,” Johnston said.
PepsiCo reiterated it will increase per-share earnings, excluding the effects of currency fluctuations, at least 7 percent. That would produce profit of about $4.39 a share, up from $4.10 in 2012. The company expects currency fluctuations to reduce its full-year earnings per share by 2 percentage points.
Peltz, who disclosed stakes in PepsiCo and Mondelez in April, said at a conference in New York in July that PepsiCo should acquire Mondelez in an all-stock deal that would be valued at as much as $67.8 billion. Mondelez, the Deerfield, Illinois-based maker of crackers and sweet snacks, had a market value of about $54.4 billion at yesterday’s close. Peltz said that he has met often with Nooyi and that the company didn’t favor the idea.
PepsiCo has responded that its strategy is working and it is confident in its ability to increase shareholder value as an combined food and beverage company.
“Why break them up?” Warren Buffett, whose Berkshire Hathaway Inc. (BRK/A) is Coca-Cola’s largest shareholder, told CNBC today in an interview. “I believe in running a company for the shareholders who are going to stay rather than the ones who are going to leave.”
Trian held 12.3 million shares, or 0.8 percent, of PepsiCo as of June 30. The firm held almost 41 million shares, or 2.3 percent, of Mondelez.
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