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Pepsi profit up, CEO out
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October 4, 2000: 1:45 p.m. ET
Soft drink maker's earnings beat Wall St. forecasts; Enrico to step down
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NEW YORK (CNNfn) - PepsiCo Inc. reported third-quarter earnings Wednesday that topped Wall Street forecasts and said Chairman and CEO Roger Enrico will step down.
The No. 2 U.S. soft drink maker reported third-quarter earnings of $587 million, or 40 cents a diluted share, up from $507 million, or 34 cents, in the year-ago period.
 Analysts had expected Pepsi to earn 39 cents a share. Stronger volume in several lines, including Frito-Lay snack food and Tropicana fruit juice products, contributed to the stronger results. Sales rose 7 percent to $4.9 billion.
The upbeat quarter is the latest in a string for Pepsi, which has thrived under the leadership of Enrico, who is credited with helping to successfully spin off its restaurant and bottling business. After taking the helm in 1996, Enrico oversaw the company's spinoff of Taco Bell, KFC and Pizza Hut restaurants -- which had been a drag on the company's profits -- into Tricon Global Restaurants.
He also helped engineer the company's new emphasis on snack foods rather than beverages.
Pepsi said Enrico, 55, will step down as CEO before the end of 2001 and as chairman before the end of 2002. Pepsi's board tapped 51-year-old President and COO Steve Reinemund to succeed Enrico. The move was not unexpected as Enrico has said all along that he would step aside once the company was turned around.
"This was expected, once they moved Steve Reinemund up from Frito into the new president-COO role," said J.P. Morgan analyst John Faucher. "He's known for strong fiscal discipline, and that's what's really sort of turned Pepsi around over the past couple of quarters, and so I think people will be encouraged by this."
Goldman Sachs analyst Marc Cohen called Enrico's departure a loss for PepsiCo, but said it was not shocking.
Enrico has not said what he planned to do once he leaves Pepsi, but a company spokesman said he was "keeping his options open," and that he might be interested in some type of community service.
"When I was elected CEO, I said I hoped to have the perseverance to stay long enough to get the job done and the wisdom not to remain too long," Enrico said. "By the end of 2001, I will have been a part of the PepsiCo team for 30 terrific years. I'm sure it will be surprising to very few people that I now feel it is time to move on to creating a new chapter in my life."
Enrico joined PepsiCo in 1971 as an assistant product manager in the Frito-Lay division and worked his way up, heading five of the company's operating divisions and each of its main businesses. In addition to overseeing the IPO of Pepsi's bottling unit and spinning off the restaurant business, Enrico helped engineer the acquisition of Tropicana brand juice products.
Reinemund previously served as CEO of Frito-Lay Worldwide and has been a member of Pepsi's board since 1996.
"I'd just like to say that I'm obviously excited about this opportunity as you can imagine," Reinemund told analysts Wednesday. "I believe PepsiCo is extremely well positioned in the marketplace, probably better than at any time in the 16 years I've been with this company."
 PepsiCo (PEP: Research, Estimates) stock fell $1.12 to $44.88, though it's been climbing since March, when it traded in the low $30 range.
Ann Gurkin, an analyst with Davenport & Co., is upbeat about the company's future and praised the choice of Reinemund as CEO. "He's got good experience. It's a good choice," she said, noting his experience at Pepsi's Frito-Lay unit. She plans to maintain her "accumulate" rating on the stock.
While other big multinational companies have been hurt by currency fluctuations, Pepsi's earnings have barely been touched by the weak euro, mainly because of the relative strength of currencies in Latin America, where the company has increased its presence significantly.
The company, which said it expects earnings per share growth in the mid-teens for the full year, has been on an acquisition tear overseas in the last several years, snapping up smaller Latin American competitors in particular, making it the dominant snack company in that region.
The company also announced a "weight-out" program for its Frito-Lay division, which has seen steady declines in its gross margins. The program involves reducing the weight of the bags of some of its snack brands, (essentially adding a few less chips), but not changing the retail price.
Reinemund said he expected double-digit growth for Frito Lay in the next quarter as a result of the new program and the strength of the brand.
Skip Carpenter, an analyst at Donaldson Lufkin & Jenrette, said Pepsi's plan is to solidify itself as the top snack company worldwide and that it does not have unrealistic hopes of unseating its rival Coca-Cola Co. (KO: Research, Estimates), the No. 1 soft drink producer.
"This company continues to fire on all four cylinders," Carpenter told CNNfn's "In the Money" program Wednesday, adding that profitability at Frito-Lay and the beverage business were in excess of 20 percent in the third quarter.
Pepsi's most recent acquisition, completed in the third quarter, was Margarita, a dominant salty snack producer in Colombia, Enrico told analysts during a conference call Wednesday, adding that several more acquisitions are expected in the fourth quarter. He did not provide details other than to say Pepsi had not yet targeted any specific companies.
 Doug Lane, a Merrill Lynch analyst, said he is maintaining his "buy" rating on the company based on its strength in the snack food area.
Although soft drinks now account for just a quarter of the company's revenue, it continues to develop new products to keep pace with competitors such as Cadbury-Schweppes, which last month acquired Snapple and RC Cola. Enrico told analysts the company is in the process of test marketing a lemon-flavored Pepsi Cola.
From staff and wire reports 
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