PepsiCo Inc. has found its recipe for success in this economic environment: raise prices and grow overseas.
PepsiCo, like many U.S. companies, has faced a balancing act during this period of global economic uncertainty. Many consumer brands from McDonald's to Nike have raised prices as they try to offset their higher costs for ingredients, packaging and fuel. At the same time, they've had to look elsewhere to expand their business as consumers in developed markets like the U.S. have cut back on spending.
PepsiCo, maker of such products as Mt. Dew soda, Gatorade drink and Lay's potato chips, showed Wednesday that the emphasis on higher prices and growing its overseas business paid off in the third quarter. The company reported that its profit rose 4 percent for the period, beating Wall Street estimates.
PepsiCo earned $2 billion, or $1.25 per share, for the quarter that ended Sept. 3. That's up from $1.92 billion, or $1.19 per share, in the same quarter last year. Excluding charges related to its acquisition of Russian juice and dairy company Wimm-Bill-Dann and other one-time items, earnings were $1.31 per share. PepsiCo's revenue climbed 13 percent to $17.58 billion.
The results beat analyst expectations of $1.30 per share on revenue of $17.11 billion, according to FactSet.
The company increased its sales volume in both snacks and beverages during the period. Its biggest revenue gains came from overseas, with Europe reporting a 37 percent revenue increase because of higher prices and the addition of Wimm-Bill-Dann. Revenue for Asia, the Middle East and Africa rose 25 percent on increased prices and volume growth, particularly in emerging markets. The Latin America Foods unit posted a 19 percent increase in revenue, led by Mexico and Brazil.
In North America, the company's Frito-Lay business reported a 4 percent increase in revenue on strong sales of its Lay's Doritos, Cheetos and Ruffles brands. Revenue for Quaker Foods North America edged up 2 percent on higher prices and cost controls.
PepsiCo Americas Beverages has been its softest segment as consumers have cut back on spending and shown a preference for other drinks. The business posted a 3 percent revenue increase, largely on higher prices. Gatorade led volume growth for non-carbonated beverages such as juices and sports drinks in North America. Company leaders said the North American beverage business remains a terrific business and a tough business, as it competes fiercely with companies such as Coca-Cola and Dr. Pepper Snapple.
PepsiCo CEO Indra Nooyi said Wednesday that PepsiCo may have pushed volume too much in years past rather than develop the identity and popularity of its brands more. The company has worked to improve the popularity of some of its brands such as Pepsi Max, which has no calories and has greatly increased its sales.
PepsiCo will now turn to doing the same for its other brands. Nooyi said the company is also trying to think about creative ways to attract U.S. consumers who may still want to buy PepsiCo's drinks but have cut back on their spending. The company also said it will take further pricing increases in the fourth quarter on select products and certain markets
"It's not going to take an awful lot to get this thing going again," said Edward Jones analyst Jack Russo. "This quarter it was good to get some stabilization and hit the number."
PepsiCo reaffirmed its guidance for the year, but company leaders said they would wait until December to provide 2012 guidance to see how commodity prices, the economy and consumer response to higher prices play out.
PepsiCo leaders also dispelled any potential concern that it might go the way of Kraft Foods Inc. or Sara Lee Corp., which have recently announced plans to split up their businesses.
"I firmly believe that PepsiCo's value is maximized as one company," Nooyi told investors Wednesday. "It was created as an integrated snack and beverage business and its success is tied to this combination. This has been true in the past and will remain in the future."
Shares of PepsiCo rose $1.75, or 2.9 percent, to close at $62.70 Wednesday.
AP Business Writer Michelle Chapman contributed to this report