Pepsi's Stellar 3Q Gains Fueled By International Growth and Falling Dollar

By Mike Caggeso
Staff Writer

PepsiCo Inc. (PEP) ended its third quarter with big numbers - a 17% gain in net income, a 19% increase in earnings per share, and an 11% gain in revenue - largely because of its continually growing international presence.

The global beverage-and-food company has been ramping up operations in China, where Pepsi's risky color change is gaining ground in its Olympic-sized cola war with Coca-Cola (KO).

Pepsi's four main divisions all posted net revenue growth: Frito-Lay North America was up 6%, PepsiCo Beverages North America up 3%, Quaker Foods North America up 2%, and PepsiCo International up 22%, an impressive increase fueled by double-digit growth in China, Russia, Pakistan and the Middle East.

Overall, Pepsi reported net income for the quarter ended Sept. 8 of $1.74 billion, or $1.06 cents a share. That compares with net income of $1.49 billion, or 89 cents a share, for the comparable quarter a year ago.

And all this was accomplished even though the price of corn - a major ingredient of its soda and snacks - soared 21% this year on the Chicago Board of Exchange.

"Our third quarter performance was very strong, with double-digit revenue and operating profit growth," PepsiCo Chairman and CEO Indra Nooyi told the Wall Street Journal. "All of the company's operating divisions successfully navigated through an environment of higher input costs in order to deliver balanced top- and bottom-line performance."

The Upside of the Falling Dollar

But underneath the numbers, the currency shift and diminishing value of the dollar has given Pepsi - and many other globally focused U.S. companies - a strong and steady tailwind. The dollar's fall against currencies around the world is driving down the overseas prices of U.S. exports, and driving up export sales. That's helped stabilize the U.S. manufacturing job base.

For Pepsi, "favorable foreign currency upsides allowed us to reinvest in several international markets in the quarter," Nooyi said in a company statement.

And the falling dollar opens many other doors for U.S. investors to profit. Not just riding the coattails of internationally moving American companies like Pepsi, Yum! Brands Inc. (YUM) and Exxon Mobil Corp. (XOM), but by investing in exchange traded funds (ETFs) and in foreign currencies gaining on the dollar.

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