Pepsi Profits Dip 85 Per Cent In Q4

PepsiCo Inc, citing big losses in its international beverage business, Tuesday reported an 85 per cent decline in fourth-quarter profits.

But a company official said the nations second-largest soft drink company would continue investing in fast-growing markets, such as, India, Russia and China, though she admitted Pepsis international operations would likely continue to lose money.

PepsiCo, based in Purchase, NY, said net income for the quarter fell to $28 million, or 3 cents a share, from $181 million, or 11 cents a share, in the 1995 quarter.

The company said its Pizza Hut and Taco Bell restaurant chains, which it plans to spin off into a separate company, also posted lower profits.

Profits for all of 1996 fell 28 per cent to $1.15 billion, or 72 cents a share, from $1.61 billion, or $1 a share.

The company reported slightly improved sales for the quarter and full year, mostly on the strength of sales of soft drinks and Frito-Lay snacks in North America. Sales for the quarter grew 4 per cent to $9.53 billion from $9.21 billion and for the year rose 5 per cent to $31.65 billion from $30.26 billion.

PepsiCo spokeswoman Margaret Moore told Wall Street analysts the companys strategy to improve its international beverage business was to move cash from places that are not generating returns to places that are.

Pepsis Latin American beverage operations fared so badly in1996 that a key bottler from Venezuela defected to rival Coca-Cola Company.

Asked whether PepsiCo would pull out of Latin America, Moore replied: Were not withdrawing from any market.

Analysts said even when PepsiCo restructures its international beverage business, it will be some time before the business is profitable. Moore said the operations will likely report a loss in 1997.

Its like climbing out of a very, very deep hole, said Martin Romm, at Credit Suisse First Boston. Its going to take some major work to get that business back to profitability.

The companys plan for the international beverage operations is part of a larger strategy announced last month, when PepsiCo said it would spin off its $11 billion restaurant operations to focus on its beverage and snack food lines.

Our goal is to produce consistent earnings growth of about 15 per cent a year. Despite remarkably strong performances by many of our businesses, we fell well short of that in 1996, chairman Roger Enrico said in a statement.

On one hand, North American beverages, global snacks, international restaurants and KFC all made terrific progress and lots of money, Enrico said. On the negative side, profits at Pizza Hut and Taco Bell were down in a sluggish industry.

PepsiCo announced in September that it would take more than $500 million in charges related to the restructuring. After taking $390 million of that amount in the third quarter, it took an additional $186 million in the fourth quarter.

The company said its Pepsi-Cola North America unit had an excellent year, with sales growing 4 per cent and profits advancing a strong 14 per cent. But international beverage sales volume fell 9 per cent in the quarter and 2 per cent for the year.

PepsiCo said three-quarters of the decline in the quarter came from Latin America, largely due to the loss of its bottler in Venezuela.

PepsiCo said US restaurant sales declined 2 per cent in the quarter and 1 per cent for the full year, due primarily to lower sales at its Pizza Hut and Taco Bell chains.

PepsiCo stock fell $1.25 to $32.875 on the New York Stock Exchange, where it was one of the most actively traded issues.