Analyst raises estimates on PepsiCo for 2009, 2010, cites strong international growth

Analyst raises estimates on PepsiCo for 2009, 2010

MILWAUKEE — An analyst on Friday raised his estimates for PepsiCo Inc., saying the soft drink and snack maker had better-than-expected pricing and profit margins in its third quarter, particularly in its international division.

The Purchase, N.Y.-based company said Thursday its fiscal third-quarter profit rose 9 percent, beating analyst estimates, thanks in part to cost-cutting, even as revenue slipped 1 percent.

Janney Smith analyst Jonathan Feeney told clients in a note the result was driven by international performance.

The company’s international segment posted a 13 percent rise in revenue and 31 percent gain in operating profit. Revenue gained in Europe, Asia, the Middle East and Africa. Feeney said the gains, coupled with better cost controls, boosted profit.

Performance in Latin American foods, the company’s Frito-Lay snack business, and its Quaker unit all were as strong or better than he expected, Feeney wrote. The company’s Americas beverage business, with a 6 percent drop in volume and a 9 percent revenue decline, was weak again. Consumers are switching from sodas to healthier juices and teas. Feeney also said the company’s Gatorade brand is having a slow turnaround and people are drinking more tap water, which is free.

The company is on track to buy its two biggest North American bottlers, the analyst said. PepsiCo announced the $7.8 billion deal in August, saying owning the bottlers would help the company be quicker to market with new products and react better as consumers change their drinking habits.

PepsiCo said it expected earnings per share to rise between 11 percent and 13 percent in fiscal 2010, which Feeney said implies a range of $4.16 to $4.24, without the effects of foreign currency exchange.

Feeney said the guidance includes the bottler deal, which is expected to close late this year or early next year. He said management has been “abundantly clear” that it will reinvest in the business, which he said means PepsiCo could deliver more than its promised savings from the deal — about $300 million — by removing overlapping costs.

Feeney raised his fiscal 2010 estimates by 16 cents to $4.17, and his fiscal 2009 estimates by 6 cents to $3.75. According to Thomson Reuters, analysts on average predict earnings per share of $3.73 in fiscal 2009 and $4.11 in fiscal 2010.

He raised his price target from $68 to $70. UBS analyst Kaumil Gajrawala on Thursday raised his price target from $66.50 to $71, saying the company has “reinvestment flexibility” due to its savings programs, easing foreign currency challenges and benefits from the bottler deal.

Shares fell 38 cents to $60.01 in morning trading Friday.