PepsiCo Posts Some Refreshing Results

Things are generally looking good for snacks-and-beverages giant PepsiCo (NYSE: PEP). To the surprise of sometime-cynics such as myself, even the beleaguered North American beverage business is showing initial signs of stabilization.

Second-quarter revenue shot up by 40% to $14.8 billion. That move was powered by the company's bottler acquisitions, which more than doubled sales in the Americas Beverages segment.

Reported earnings per share, however, fell 7% to $0.98, as higher interest and tax expenses, along with integration-related costs, all weighed on profitability. Excluding these and other factors, "core" EPS came in at $1.10, representing an 8% year-over-year gain. For the full year, management expects this metric to show growth in the 10%-12% range.

Companywide, snacks volume advanced 1% and beverages volume improved by 11%, with the latter driven by the bottling business. Excluding the bottler boost, beverage volume in the key North American market declined by 1%, which sorely lags the 2% growth that chief rival Coca-Cola (NYSE: KO) posted in its second quarter. Management described the North American consumer environment as "still very challenging."

That said, the 1% volume slip was a 4.5-percentage-point improvement from the prior quarter. Moreover, the launch of Gatorade G Series drinks in retail channels such as Dick's Sporting Goods (NYSE: DKS) helped the long-ailing Gatorade line post volume growth for the first time in two years. Personally, I'll want to see at least a full year of improving North American beverage trends before declaring PepsiCo officially in the clear. For now, I'm mildly encouraged.

Management had other good news to share. For one, the company's Doritos and Pepsi brands are featured choices in a $2 meal special currently offered by Yum! Brands' (NYSE: YUM) Taco Bell chain. At the very least, that's strengthening consumer impressions, and depending on whether PepsiCo is offering Taco Bell promotional pricing, it could be juicing revenue as well. In addition, PepsiCo is now the largest global food and beverage company in Russia, presenting what management called "tremendous scale advantages."

And the future holds its own highlights. Following the launch of "real sugar" (versus high fructose corn syrup) sweetened beverages by Dr Pepper Snapple (NYSE: DPS) in 2009, PepsiCo plans to roll out an all-natural sugar-sweetened version of Sierra Mist in the second half of the year. Furthermore, management reiterated its commitment to building its "good for you" products into a $30 billion business by 2020. In the healthy/healthier snacks category, there'll likely be plenty of competition from Kellogg (NYSE: K), General Mills (NYSE: GIS), and others, but the market is probably large enough to accommodate multiple winners.

PepsiCo shares sit at roughly the same level as when I described the stock as a decent long-term buy last month. Barring widespread multiple contraction that could come with a double-dip recession, my opinion today is unchanged. Cheers to something remaining the same in these manic times.