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PepsiCo profit rises; but outlook tempered

Bottles of Pepsi are dispalyed at a grocery store in Springfield, Ill., Wednesday, Feb. 9, 2011.

Seth Perlman/AP

PepsiCo Inc. tempered its full-year outlook Thursday due to economic uncertainty, sending its shares down nearly 2 per cent in trading before the market opened.

The maker of Pepsi-Cola, Frito-Lay snacks and Quaker oatmeal said performance in its North American beverage business was worse than it expected, due to weakened consumer demand and intensifying competition, which has made it difficult to raise prices to offset soaring commodity costs.

"Of the three factors impacting North America beverages - inflation, consumer demand and pricing - the consumer demand picture is the most concerning to us at this point," Chief Executive Indra Nooyi told analysts on a conference call. "In fact, the modest pickup in total consumer spending almost all U.S. businesses saw earlier in the year has reversed in the past several months."

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Morningstar analyst Philip Gorham said he was not surprised that Pepsi adjusted its outlook.

"This isn't going to be unusual. People are going to recognize that the third and fourth quarters are going to be more challenging than the first half of the year," Mr. Gorham said.

The company now expects 2011 earnings to grow at a high single-digit rate, from the $4.13 per share it earned in 2010. The new forecast includes a 2 percentage-point boost from foreign exchange rates. Its prior target, for growth of 7 to 8 per cent, did not include that boost.

The company said the new goal reflects greater uncertainty regarding macroeconomic and consumer trends for 2011, high global commodity cost inflation and ongoing investments in emerging markets and brand building.

PepsiCo shares fell to $67.30 in premarket trading from Wednesday's closing price of $68.49 on the New York Stock Exchange.

Net income in the second quarter June 11 rose to $1.89-billion or $1.17 per share from $1.60-billion or 98 cents per share a year earlier.

Excluding one-time items, earnings were $1.21 per share, matching analysts' average estimate, according to Thomson Reuters I/B/E/S.

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Net revenue jumped about 14 per cent to $16.83-billion.

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