updated 2/7/2008 9:26:41 AM ET 2008-02-07T14:26:41

PepsiCo Inc., the world’s second-largest soft drink maker, said Thursday its fourth-quarter profit fell 31 percent from results a year ago that included a tax benefit from a settlement with the Internal Revenue Service.

The company which also owns the Frito-Lay snacks business said it expects earnings and revenue growth in 2008.

Net income dropped to $1.26 billion, or 77 cents per share, in the last three months of 2007 from $1.83 billion, or $1.09 per share, a year ago.

Excluding certain one-time items, the company said it earned 80 cents per share in the latest quarter versus 74 cents a share a year earlier, putting it in line with analyst expectations. Results from the year-earlier quarter included a $128 million tax benefit from an IRS settlement that boosted earnings per share by 36 cents that year. Plant closings and a divisional reorganization cost 4 cents per share in the most recent quarter.

Revenue in the October-to-December quarter rose 17 percent to $12.35 billion from $10.57 billion a year ago.

Analysts polled by Thomson Financial, who normally exclude one-time charges, had predicted earnings of 79 cents per share on revenue of $11.56 billion.

Chief executive Indra Nooyi said in a statement that the company has been able to leverage its strong brands to deal with higher costs for commodities such as corn, cooking oil and energy.

“All of our segments posted solid results for the year,” she said.

For all of 2007, the company earned $5.66 billion, or $3.41 a share, versus $5.64 billion, or $3.34 a share, in 2006. Revenue rose 12 percent to $39.47 billion from $35.14 billion.

PepsiCo said that it expected 3 percent to 5 percent volume growth, mid- to high-single digit revenue growth and full-year earnings per share of $3.72 in 2008.

Analyst Bill Pecoriello of Morgan Stanley told investors the quarterly results were in line with expectations, and that the company’s stock could be better off now that the company has confirmed its outlook for the year.

“The market was certainly worried the guidance could have been lower as indicated by recent share performance,” Pecoriello wrote in a research note.

Purchase, N.Y.-based PepsiCo, which is second only to The Coca-Cola Co. in soft drink sales, has been expanding its non-cola and snacks portfolio. Recent details include expansions of partnerships with Unilever NV for Lipton-brand ready-to-drink teas and Starbucks to sell Starbucks Frappucino bottled drinks in China.

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