Pepsi tops estimates as beverage battle deepens

[April 26, 2018]   (Reuters) - PepsiCo Inc's <PEP.O> quarterly revenue and profit beat Wall Street targets on Thursday as it sold more beverages and snacks across the developing world and posted a smaller sales decline in its North America beverages unit.

Like rival Coca-Cola earlier this week, the introduction of new flavor variations and drinks helped the world's second biggest beverage maker gain back ground in a U.S. market where it has suffered from consumers shifting away from its high-sugar carbonated sodas.

Sales in the North America beverage unit, which makes Lipton tea and Mountain Dew as well as Pepsi itself, fell 1 percent, but were still an improvement over the past two quarters when they decreased at least 3 percent.

That helped push shares in the company almost 1 percent higher.

Revenue from Latin America, and its Europe and Sub-Saharan Africa region by contrast rose 14 percent and 15 percent respectively. Sales in Asia, the Middle East and North Africa rose by 7 percent.

The introduction of flavored sparkling water Bubly, carbohydrates free Gatorade Zero, Lipton Iced Tea with a Splash of Juice, and a line of organic fruit juices called Tropicana Kids this year drove much of the North American recovery.

Pepsi and Coke are also both adding teas and coffees to their offerings and launching low and no-calorie versions of their marquee sodas.

"Although we continued to face challenges in North America Beverages, the sector had sequential improvement in top line momentum since the fourth quarter of 2017," Chief Executive Officer Indra Nooyi said in a statement.

Nooyi said the company recognizes the need to step up investments in its core carbonated soft drinks portfolio and will continue to do so.

Bottles of Pepsi are pictured at a grocery store in Pasadena, California, U.S., July 11, 2017. REUTERS/Mario Anzuoni/File Photo

Coca-Cola earlier this week posted strong soda sales growth and said it gained market share due to the launch of four new flavors of Diet Coke soda and a new marketing initiative started earlier this year.

Though Pepsi is largely known for its drinks, the company also has another big business - snacks - where it has been introducing healthier options including Brown Sugar Whole Grain Snacks as well as innovating with new flavors and ingredients.

Sales at the snacking division, Frito-Lay, rose 3.4 percent in the first quarter.

Pepsi stuck to its full-year 2018 guidance and said it was on track to improve sales at its beverage unit. It also flagged costs of $700 million to $800 million it expects to incur this quarter due to the Internal Revenue Service's new transition tax guidance.

Excluding items, Pepsi earned 96 cents per share, beating analysts' average estimate by 3 cents, according to Thomson Reuters I/B/E/S.

Total revenue rose 4.3 percent to $12.56 billion, topping analysts' estimate of $12.40 billion.

(Reporting by Nivedita Balu and Siddharth Cavale in Bengaluru; Editing by Patrick Graham)

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