Pepsi's Effervescent Quarter

Back in 1963, PepsiCo's (NYSE:PEP) marketing slogan was "Come alive! You're in the Pepsi generation." More than 40 years later, the soft-drink and snack maker is still very much alive and still growing, as seen in its newly released third-quarter results.

The numbers were up in all product categories. Worldwide beverage volume rose 10% over the comparable quarter a year ago -- a level of effervescence that rival Coca-Cola (NYSE:KO) can only hope to muster. Snack volume increased 4.5%. Even small subsidiary Quaker Foods North America (4.4% of total sales but 6% of operating profits) managed a 2.5% sales increase on the strength of its Rice-A-Roni and Life cereal brands.

Worldwide PepsiCo revenue for the quarter increased 13%, and net income, after excluding one-time tax items, was up 18%.

In North America, beverage volume grew 8%. But check out this mix. Carbonated beverage volume was, well, flat while non-carbonated beverages sparkled with 24% growth. Leading the charge were brands such as Gatorade and Propel -- acquired in the 2001 Quaker Oats merger -- and Aquafina bottled water.

International beverage volume, up 13%, saw double-digit percentage gains in both carbonated and non-carbonated beverages. Snacks delivered a tasty 2% increase in North America and a 7% gain internationally.

Particularly positive was that revenue growth within each division surpassed volume growth -- indicative of positive pricing and demand trends across the company's product mix. While acknowledging that Hurricane Katrina will impact raw-material costs and, potentially, consumer demand, the company raised high-end guidance for fiscal 2005 (which includes one more week than last year) by two cents to $2.65, a figure that excludes a repatriation charge.

All of this good news is priced into the stock, which is trading at 21.8 times the mean analyst estimate for this fiscal year. That's a rich premium for a company that analysts expect to grow earnings at 10.4% annually for the next five years, though it compares favorably with Coke, which is trading at 20.2 times mean analyst estimates and is forecasted to grow 8.1% for the next five years.

But PepsiCo is a cash machine that is expected to churn out $6 billion in operating cash flow this year. With a capital budget of around $1.1 billion, there is plenty of cash left over for debt reduction, share buybacks, or even an increase in the dividend. This just might be a stock worth popping into.

Pepsi rival Coca-Cola is a Motley Fool Inside Value recommendation. Let Philip Durell help you find great companies selling at value prices, no matter what your preference of soda -- start a risk-free free trial subscription to Inside Value today.

Fool contributor W.D. Crotty owns shares of PepsiCo. Click here to see The Motley Fool's disclosure policy.