PepsiCo updates 2009 outlook, signs Dr Pepper deal

AP News
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Posted: Dec 08, 2009 11:59 PM

PepsiCo Inc., the world's second-biggest soft drink maker, on Tuesday lowered the top end of its fiscal 2009 profit and sales guidance, and said it has reached a deal to make and distribute Dr Pepper and other drinks after it completes the buyout of its two biggest bottlers.

Dr Pepper Snapple Group Inc. had deals with the two bottlers, and PepsiCo's latest move would replace those once the acquisitions close. The agreement is contingent on the buyouts going through.

PepsiCo now expects 2009 net revenue to rise 5 percent if currency stays constant and earnings per share to rise 5 percent to 6 percent from core 2008 profit of $3.68 per share. Previously, the company had expected both profit and sales to rise by a percentage in the mid-to-high single digits.

The new outlook would put 2009 adjusted earnings per share between $3.86 and $3.90, which still would easily top the average $3.76-per-share estimate of analysts surveyed by Thomson Reuters.

PepsiCo said it will distribute Dr Pepper, Crush and Schweppes brands in the U.S., as well as several brands in Canada and Mexico. Dr Pepper Snapple said it would start selling some of its brands that the bottlers sold in the U.S., such as Sunkist, Squirt, Vernors and Hawaiian Punch.

Dr Pepper Snapple Group said it would receive a one-time payment of $900 million from PepsiCo as part of the distribution deal. The payment will be recorded as sales over the life of the licensing deal, which has an initial 20-year term and is renewable.

PepsiCo expects to close the bottler buyouts this month or early next year. It has proposed buying the shares it does not already own of the Pepsi Bottling Group Inc. and PepsiAmericas Inc.

It said it in November that it withdrew paperwork related to the acquisitions to give regulators more time but that it still expected to close by early next year.

In addition to being the No. 2 soft drink maker behind Coca-Cola Co., PepsiCo owns the Frito-Lay snack business and brands such as Quaker, Tropicana and Gatorade.

The company said Tuesday it is ramping up investments in developing markets like China, and in science-based research and development designed to speed up its health-oriented offerings. PepsiCo reaffirmed its outlook for 11 percent to 13 percent 2010 earnings per share growth if currency remains constant, excluding costs of the bottler acquisitions.

Shares of PepsiCo, based in Purchase, N.Y., fell 75 cents to $63.48 on Tuesday. Dr Pepper Snapple shares rose 95 cents, or 3.5 percent, to $27.70 in after-hours trading Tuesday after closing at $26.75, down 19 cents from a day earlier.

Dr Pepper Snapple is based in Plano, Texas.