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PepsiCo 2nd-quarter profit rises

PepsiCo Inc.’s second-quarter net profit rose 13 percent on the strength of international sales and raised its full-year earnings outlook.

But its shares slipped as the company announced declines for Gatorade sports drinks and Tropicana orange juice. The company also said the higher earnings reflected a lower quarterly tax rate and faced higher raw materials costs that affected its profit margins internationally.

To Wall Street, Chief Executive Indra Nooyi reiterated the company's strategy of doing smaller, tuck-in acquisitions over a larger transformative one, dismissing as "rumors" a recent report in The Wall Street Journal about negotiations to combine with Switzerland-based food and drink company Nestle.

"We never comment on rumors of that kind," she said. "All I can tell you is our strategy is unchanged."

Analysts have been closely watching Gatorade sales for signs that higher growth rates will return. The company has in earlier quarters suffered supply chain difficulties and faced a tough comparison from surging growth since 2005, including a 29 percent rise in Gatorade in the same period a year ago.

Earlier in the week, JPMorgan analyst John Faucher told investors Gatorade sales were one of three key metrics to watch. He had expected low-single digit growth for Gatorade in the second quarter.

As for Tropicana, the company has raised prices to offset a smaller-than-normal orange crop from Florida, pressuring consumers already worried over high gas prices and falling real estate values.

Profit for the quarter ended June 16 was $1.56 billion (EUR1.13 billion), or 94 cents per share, up from $1.38 billion (EUR1 billion), or 81 cents per share, a year earlier.

Revenue rose 10 percent to $9.6 billion (EUR6.94 billion) from $8.71 billion (EUR6.3 billion) last year.

Analysts polled by Thomson Financial had predicted 89 cents per share on revenue of $9.38 billion (EUR6.78 billion). Consensus estimates usually exclude one-time items.

In addition to Pepsi beverages, Gatorade and Tropicana, PepsiCo owns Frito-Lay snacks and the Quaker foods business.

Its recent acquisitions have been aimed at expanding the company's health-and-wellness products offerings, with buys such as Izze Beverage Co. and Naked Juice Co., and the launch of a fruit and vegetable chip line called Flat Earth.

PepsiCo is the second biggest soft drink company after The Coca-Cola Co. in Atlanta.

The company also raised its full-year earnings per share forecast to at least $3.35 (EUR2.42) from its earlier prediction of $3.30 (EUR2.39).

Operating profit in the second quarter jumped 9 percent, with the international snacks and drinks unit leading the way with 18 percent growth. All the North American business units also reported rises in operating profit. Frito-Lay North America reported an 8 percent rise while PepsiCo Beverages North America rose 4 percent and Quaker Foods North America improved 2 percent.

Its shares slipped 6 cents to $66.53 in midday trading after trading as low as $65.61 earlier in the session.