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Tax charge cuts PepsiCo earnings

Company says recent hurricanes will also create higher costs

Two men stand near Pepsi machines at the IX Center in Cleveland, Ohio. PepsiCo expects to exceed what it had forecast for full-year profits.
Two men stand near Pepsi machines at the IX Center in Cleveland, Ohio. PepsiCo expects to exceed what it had forecast for full-year profits.
Amy Sancetta, Associated Press

NEW YORK — PepsiCo Inc., the soft drink and snack foods maker, said Thursday its third-quarter profit dropped because of a charge related to repatriation of overseas earnings, but its results without the charge beat Wall Street estimates as its revenue rose at its fastest pace since late 2001. PepsiCo shares rose nearly 3 percent.

The company said recent hurricanes will add to its costs, specifically fuel for trucks delivering goods and packaging made with petroleum byproducts. But, PepsiCo expects to exceed what it had previously forecast for full-year profits.

"We had to deal with some cost issues," Steve Reinemund, PepsiCo's chief executive, said in a conference call with Wall Street analysts.

The maker of Pepsi and Mountain Dew and Frito-Lay snacks, based in Purchase, N.Y., said it earned $864 million, or 51 cents a share, in the three months ended Sept. 3, down from $1.36 billion, or 79 cents a share, a year ago.

Revenue rose 13 percent to $8.18 billion from $7.26 billion a year ago. The 13 percent increase was the fastest since the fourth quarter of 2001, when PepsiCo acquired Quaker Oats.

Its earnings included a charge of 27 cents a share related to the company's decision to repatriate $7.5 billion of international earnings under the provisions of the American Jobs Creation Act. Under that law, PepsiCo gets a greatly reduced tax rate on the earnings.

The move to repatriate international earnings came as no surprise to Wall Street.

"They have telegraphed that now for six months," said Marc Greenberg, equity analyst at Deutsche Bank.

Excluding the tax items, its earnings rose to 78 cents a share, helped by sales of snacks and beverages overseas and in the United States.

Analysts polled by Thomson Financial expected earnings of 73 cents a share.

PepsiCo shares rose $1.44, or 2.6 percent, to close at $56.50 Thursday on the New York Stock Exchange. That is near the upper end of its 52-week range of $47.37 to $57.20.