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Forecast-busting profits add fizz to PepsiCo shares

The drink company's stock jumped US$2.54, or 2.4%, to US$108.43
Forecast-busting profits add fizz to PepsiCo shares
Growth in PepsiCo's snacks business outstripped its North American drinks operation

Shares in PepsiCo Inc (NYSE:PEP) fizzed up after lower costs and healthy North American snack demand helped the soft drink giant to top second-quarter profit hopes.

The stock jumped US$2.54, or 2.4%, to US$108.43 as lower raw material prices and higher demand for Frito-Lay products helped to boost PepsiCo’s net income by 1.3% to US$2.01bn, or US$1.38 a share.

PepsiCo also got a lift from new products such as Naked Cold Pressed Juice, Propel flavored water, Smartfood Popcorn and Simply snacks.

New products now make up 9% of PepsiCo’s revenue, up from 5% historically.

PepsiCo, which also makes Tropicana fruit juice, Gatorade energy drinks and Quaker Oats, said strong North American demand was behind a rise in its full-year adjusted profit forecast.

Although demand in its North American drink business only rose 1%, revenue in the Frito-Lay arm, which includes Doritos tortilla chips, Lay's chips and Simply, rose 3%.

PepsiCo's cost of sales fell 6% in the three months to June 11.

It is now predicting 2016 adjusted earnings of US$4.71 per share versus its previous forecast of US$4.66.

Chairman and chief executive Indra Nooyi said the global economy was still “incredibly volatile", but added: “We are pleased with our results for the second quarter.

“While reported net revenue performance was negatively impacted by foreign exchange translation and the deconsolidation of our Venezuelan operations, we achieved balanced volume growth and positive price/mix.”

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