PepsiCo meets 4Q forecasts

February 6, 2002 Posted: 1918 GMT

NEW YORK (CNN/Money) -- PepsiCo posted lower net fourth-quarter earnings Wednesday but matched Wall Street expectations for an operating profit as the No. 2 soft drink maker faced higher costs associated with its Quaker Oats merger, the company said.

The Purchase, N.Y.-based soft drink and snack maker earned $764 million, or 42 cents a share, excluding merger costs, during the 16-week period ended Dec. 29. That matched forecasts of analysts surveyed by earnings tracker First Call and was up from the $656 million, or 36 cents a share, it reported on the same basis a year earlier.

Including $121 million in charges from its $13.4 billion purchase of Quaker last year, the company earned $667 million, or 37 cents a share, down from $698 million, or 39 cents, a year earlier.

Revenue rose to just less than $8.0 billion from $7.6 billion. That brought full-year revenue to $26.9 billion, just behind First Call's forecast of $27.1 billion.

Pepsi's (PEP: down $2.04 to $48.77, Research, Estimates) stock fell 3.5 percent Wednesday afternoon following the earnings release.

Bryan Spillane, an analyst at Banc of America Securities, said investors could be selling the stock because of a warning late Tuesday from General Mills that sales operations could be disrupted because of its merger with Pillsbury, which happened about the same time that PepsiCo and Quaker merged.

However, Davenport & Co. analyst Ann Gurkin called PepsiCo's earnings "very strong" and said Wednesday's selloff was a buying opportunity.

PepsiCo said it anticipates the Quaker acquisition, which brought best-selling sports drink Gatorade into its stable, to bring savings at the high end of previously announced targets of $140 million to $175 million.

"The Quaker integration has brought no surprises and is solidly on track, which will allow us to focus on realizing all of the upsides from the transaction," PepsiCo CEO Steve Reinemund said.

Though Gatorade posted solid volume growth in the period, sluggish sales of the company's Tropicana orange juice dragged the division's overall sales down.

Nevertheless, PepsiCo said worldwide volume rose 3 percent, driven by strong sales of new products such as Mountain Dew Code Red, Pepsi Twist and SoBe noncarbonated beverages.

The company also said its vice chairman, Roger Enrico, will retire in March as previously announced, but will remain a director until May 2003. Additionally, former Quaker Oats chief Robert Morrison will remain until at least February 2003.

For the year, PepsiCo earned $2.66 billion, or $1.47 a share, up from $2.54 billion, or $1.42 a share, a year earlier. Revenue rose to nearly $26.94 billion from $25.48 billion in 2000.