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PepsiCo Shares Up After Earnings Beat, Boosted Outlook

PepsiCo (NYSE- PEP)Third quarter results for PepsiCo (NYSE: PEP) reported better than expected gains of 5% in net income. Trading is up 1.53% to $95.38 per share with core EPS increasing 10% to $1.36 and core gross margin expanding 45 basis points due to strong sales and new promotions in foreign markets.

For the quarter ending September 6, net income rose 5% to $2.01 billion, which equated to $1.32 per share, this compared to last year’s report at the same time of $1.91 billion or $1.23 per share. Because of performance so far this year, PepsiCo’s growth expectation of 1% point for the fiscal year has been increased to 9%.

For PepsiCo’s Beverages and Snacks segments, volume rose 1.0%. For all operation divisions, excluding Quaker Foods North America which experienced a 2.0% decline, organic revenues increased 3.1%. Also increased was coper operating profit on a constant currency basis for all divisions but Europe, which had a drop of 6%.

PepsiCo admits to facing challenges within a macroeconomic environment, accentuated with higher volatility in emerging markets, as well as ongoing slow consumer demand within the markets already developed. Nonetheless, PepsiCo achieved positive effective net pricing for developed markets, thereby expanding both operating and gross margins.

Also pointed out is the on-trend product portfolio and strong brands, which helped drive organic growth. Some analysts feel that is a slight blow directed at Nelson Peltz, an activist investor who for some time has been pressuring PepsiCo to divide the beverages and snacks segments.

According to a PepsiCo spokesperson, the strength of year-to-date results coupled with the outlook for the rest of 2014 helped bolster the company’s full year, as well as the target for core constant currency EPS growth, up 9% beyond 2013’s core EPS of $4.37.

For 2014 compared to 2013, organic revenues are expected to climb to mid-single digits. In addition, PepsiCo shares are up 13% year-to-date.

In a conference call today, Indra Nooyi, Chief Executive of PepsiCo stated that the company overall is happy with current quarter results, especially in light of challenges seen throughout the world.

Nooyi added that PepsiCo would continue to cut expenses by making investments in new manufacturing equipment as an effort of replacing labor with capital but also getting more cost from its distribution system and consolidating and streamlining back-office operations.

Nooyi confirmed that new products and promotions helped drive PepsiCo to becoming the largest contributor to growth specific to grocery store sales this year, in particular, citing the Fuel for Battle program and Call of Duty Advanced Warfare, a new iteration of the video game, Call of Duty.

PepsiCo is a global beverage and food company, with brand segments to include Frito-Lay and Quaker Foods. Founded in 1898, PepsiCo maintains company headquarters in Purchase, New York.

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