PepsiCo, as illustrated by its third-quarter results, is a powerful company that seems to be performing as well as can be expected. Its competitors aren't lying down, but if its biggest long-term issue is its ability to successfully integrate Quaker, then it may be some time before the results of that project are really known. Early returns, however -- operating profits at Quaker Foods and Gatorade/Tropicana grew more quickly than sales, year-over-year -- are encouraging.

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By Dave Marino-Nachison (TMF Braden)
October 10, 2001

Soda and snack superpower PepsiCo (NYSE: PEP) is crediting strong operating profit growth at several of its divisions in part to acquisition-related synergies and innovative new products. This news should encourage PepsiCo stockholders, particularly given some recent developments at top competitor Coca-Cola (NYSE: KO.)

The company this morning said fiscal third-quarter (ended Sept. 8) net income before charges came in at $0.48 per share, up a nickel from last year's comparable -- with the Quaker deal closed, the company is reporting past results as if the companies were already combined to facilitate comparisons -- and two cents better than Wall Street's consensus estimate.

The company turned in revenue and operating profit growth across its six divisions: Frito-Lay North America, Frito-Lay International, Pepsi-Cola North America, Gatorade-Tropicana North America, PepsiCo Beverages International, and Quaker Foods North America. "Our focus remains on growth and consistent execution of our core strategies," said Chairman and CEO Steve Reinemund in a statement. "Innovation has been strong... The integration of the Gatorade and Quaker businesses has brought no surprises, and we're very excited about the enormous opportunities these businesses create for PepsiCo."

That the company is performing well in this difficult economic environment is a testament to its strong product mix, powerful brands, and marketing muscle. That PepsiCo continues to roll out new products across all its lines -- the advertising push for a new brand of "women's oatmeal" is now heating up -- is equally noteworthy. And the effect the company's success is having on competitors is not insignificant: A partnership Coca-Cola struck with Procter & Gamble (NYSE: PG) in February to develop and market fruit juices and snacks was recently scrapped.

That's not to say that PepsiCo's competitors are lying down, however. Coca-Cola (NYSE: KO) yesterday released details of a $150 million marketing campaign tied into the upcoming Harry Potter and the Sorceror's Stone movie due from AOL Time Warner (NYSE: AOL) next month. And Cadbury-Schweppes (NYSE: CSG), an interesting company comprising drink and candy brands, filed a lawsuit against PepsiCo early this month alleging that the latter's deals with fast-food giant Tricon Global (NYSE: YUM) -- once a part of PepsiCo -- are anticompetitive and thus hurting its Dr. Pepper and 7Up lines.

But the fact remains that PepsiCo is a powerful company that seems to be performing as well as can be expected. If its biggest long-term issue is its ability to successfully integrate Quaker, then it may be some time before the results of that project are really known. Early returns, however -- operating profits at Quaker Foods and Gatorade/Tropicana grew more quickly than sales, year-over-year -- are encouraging.

Dave Marino-Nachison laughed out loud repeatedly while reading "Old Frontiersman: A Story of the Frontier." His stock holdings can be viewed online, as can the Motley Fool's disclosure policy.

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