Higher Prices Profit PepsiCo; Nooyi Says No to Splitting Company

Execs Tout Power of One, Amid Pressure to Separate Snack and Beverage Units

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PepsiCo, the world's largest snack-food maker, posted a 4% jump in third-quarter profits, aided by price increases on snack and beverage products around the world.

CEO Indra Nooyi raised snack and beverage prices globally to help counter higher commodity costs, which the company projects will continue to increase. PepsiCo also created a council in September to better coordinate sales of snacks and beverages after the company reduced its full-year profit forecast.

"PepsiCo has been more aggressive raising prices than they have in a long time," said Jack Russo, an analyst with Edward Jones & Co. in St. Louis, Missouri. "All the staples companies are seeing cost pressures."

PepsiCo's cost of sales in the quarter jumped 21% to $8.45 billion.

The company also remains under pressure to split up its snacks and beverage businesses. A growing number of Wall Street analysts have suggested PepsiCo's fast-rising snacks unit is being held back by its underperforming beverage business.

Carlos Laboy, an analyst at Credit Suisse, believes PepsiCo should separate its snacks unit from its North American beverage division amid market-share losses to Coca-Cola Co.

"PepsiCo will need to transform its current model into an advantaged one," Mr. Laboy wrote in a report this month. "It needs the funds to keep pace and a better structure to make faster growth sustainable."

Ms. Nooyi said on a conference call with analysts today that PepsiCo's value is maximized as one company. "PepsiCo is an integrated company with two highly focused and complementary businesses: snacks and beverages, with a nutrition business nested within these two segments," she said. "It is simply a clean, focused company that derives its strength from a world-class snacks business augmented by a geographically diverse, iconic, profitable beverage business. Our success is absolutely linked to the Power of One."

Splitting the company wouldn't outweigh the resulting increased operating costs, said CFO Hugh Johnston, adding he has "looked at every single scenario you could probably come up with" to boost shareholder value.

PepsiCo's third-quarter sales rose 13% to $17.6 billion. Global snacks volume grew 8% while beverage volume advanced 4%. Volume at PepsiCo's Americas beverage unit was little changed. Non-carbonated drinks volume growth in North America was led by a 9% increase in Gatorade.

Coca-Cola, the world's largest soft-drink maker, will report third-quarter earnings Oct. 18.

-- Bloomberg News

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