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Pepsi gulps lower 1Q profit
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April 28, 1998: 12:05 p.m. ET
Frito-Lay looking up, drink sales fall flat as Pepsi plans for Generation Next
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NEW YORK (CNNfn) - PepsiCo Inc. on Tuesday reported a 12 percent drop in first-quarter income but beat analysts' estimates as gains in its snack-food business helped bolster results.
The Purchase, N.Y.-based company said net income in the quarter ended March 21 was $377 million, or 24 cents a diluted share, down from $427 million, or 27 cents a diluted share, in the period a year ago.
Those results beat analysts' consensus expectations, as compiled by First Call, for a profit of 23 cents a share.
However, that was not enough to help PepsiCo shares (PEP), which fell 1-3/8 to 41-11/16 in mid-Tuesday trading on the New York Stock Exchange.
Pepsi said the first-quarter 1997 results were inflated by a one-time gain due to the spin-off of fast-food businesses - including Pizza Hut, Taco Bell, and KFC. That spin-off was completed last October.
Excluding the one-time gain, operating earnings in the first quarter of 1997 were $318 million, or 20 cents a diluted share. Operating earnings in the first quarter of 1998 were the same as net earnings - 24 cents a share.
On an operating basis, gains in PepsiCo's domestic snack food business - Frito-Lay - offset flat sales in its global beverage business in the first quarter. The company has invested in those businesses for the long haul in its battle with soft drink leader Coca-Cola Co.
"PepsiCo is on track for a solid 1998," said Chairman and Chief Executive Officer Roger Enrico. "While we're still in the process of transition, I am pleased by our progress."
"The changes we made last year, especially our restaurant spin-off, are allowing us to post good earnings per share growth at the same time as we invest aggressively to build our businesses for the future," Enrico said.
Total revenues in the first quarter rose 3 percent from a year ago to $4.35 billion.
Worldwide beverage revenues were flat in the quarter as 3 percent growth in PepsiCo's large North American business was offset by a 14 percent decline in overseas sales due to the sale of its Japanese bottler late in 1997.
Worldwide case volume rose 4 percent in the quarter. But analysts said the snack foods unit, which saw sales climb 7 percent worldwide despite a strong dollar, was PepsiCo's key driver in the quarter.
"The shining light in Pepsi's business right now is Frito-Lay," said Martin Romm, an analyst at CS First Boston. "I am a buyer of Pepsi stock based almost entirely on the improvement at Frito-Lay." 
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PepsiCo
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