updated 7/15/2004 1:25:39 PM ET 2004-07-15T17:25:39

PepsiCo Inc. posted a 12 percent gain in second quarter earnings Thursday, as strong overseas sales partially offset weakness in its snacks, cereal, rice and pasta businesses. The company said it would introduce more low-sugar, high-protein products to woo carb-conscious consumers.

The Purchase, N.Y.-based beverage and snack company earned $1.06 billion, or 61 cents per share, in the three months ending June 12, compared to $944 million, or 54 cents per share, in the year-ago period.

PepsiCo's earnings met the expectations of analysts surveyed by Thomson First Call.

Second quarter revenue rose 8 percent to $7.07 billion, from $6.54 billion in the same period last year.

Revenue from Frito-Lay North America grew 4 percent to $2.24 billion in the second quarter, despite weakness in the Quaker snacks business. The company said the category should benefit from the introduction of several new low-carb products, including Quaker Q-Smart low carbohydrate bars, Fruit and Oatmeal low-sugar bars, and Quaker Soy Crisps growth.

The Frito-Lay division also is aggressively promoting its new low-carbohydrate Edge product line of Doritos, Tostitos and Cheetos.

PepsiCo Beverages in North America generated revenues of $2.13 billion for the quarter, up 9 percent from the year-ago period. Non-carbonated beverage case sales, led by Gatorade, grew 14 percent.

The division is also courting the low-carb market, with last month's introduction of Pepsi Edge, a soft drink advertised to contain half the sugar and calories of regular Pepsi.

PepsiCo International sales totaled $2.4 billion for the second quarter, up 13 percent from the year-ago period, reflecting strong sales in both snacks and beverages across all regions as well as favorable foreign exchange rates.

Revenue from Quaker Foods North America declined 2 percent to $303 million, reflecting soft demand for cereals, pasta and rice products. The company plans to launch a low-sugar oatmeal product and cheese-enriched "Rice-a-Roni" later this year in an effort to address consumer demand "for products with less sugar and higher-protein content."

Volume, driven by strong international results, grew 8 percent worldwide for the second quarter. Servings of snacks grew 6 percent, while servings of beverages grew 10 percent worldwide.

PepsiCo expects 2004 earnings per share of at least $2.29, chairman and chief executive Steve Reinemund said in a press release. Analysts surveyed by Thomson First Call are predicting earnings of $2.31 for the year.

Reinemund said PepsiCo will continue to execute a share repurchase program that began in August 2002. As of July 9, PepsiCo has spent over $2 billion to repurchase over 38 million shares.

For the six months ending June 12, PepsiCo earned $1.86 billion, or $1.07 per share, up 13.5 percent from $1.64 billion, or $0.95 per share, in 2003. Revenue increased 9.4 percent to $13.2 billion, from $12.07 billion in the year-ago period.

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