Frito-Lay and Tropicana Keep PepsiCo on Track

On Wednesday, food and beverage giant PepsiCo (PEP) reported a solid first quarter in line with expectations, as positive and negative surprises canceled each other out. PepsiCo announced earnings of $0.29 a share, up 16% from a year ago and a penny above consensus estimates.

Results for Pepsi-Cola North America were disappointing. The division's operating profit slid 8%, with the company attributing the shortfall to a combination of pricing pressure and unexpected seasonal expenses. The effect was muted, however, because PepsiCo now gets the majority of its revenue from its Frito-Lay division. Frito-Lay showed strong growth both domestically and internationally, offsetting the weakness in the beverage business.

On the positive side, PepsiCo's Tropicana juice division blew away expectations, as profits rose 70% on the strength of the high-end Pure Premium brand. The company also reported strong results from its other noncarbonated beverages, including Aquafina bottled water, and said that it expects 20% annual growth from these brands.

One name conspicuously absent from Wednesday's conference call was Coca-Cola (KO), which yesterday reported a $0.02 per share net loss amid widespread restructuring. Though he did not explicitly mention Pepsi's troubled longtime rival, CEO Roger Enrico made it plain that he's aware of the opportunity Pepsi has to gain market share. This year, the company is bringing back the Pepsi Challenge, which helped Pepsi make huge gains against Coke in the late 1970s. Enrico also noted that Pepsi won't need to do any write-offs in its international operations, an apparent jab at the write-offs that have contributed to Coke's losses over the past two quarters.

PepsiCo is not without its own problems. Its international beverage division tanked last year, though today's result showed that division to be on the comeback trail already. But it's certainly in better shape right now than Coke, and now would be the perfect time to benefit at Coke's expense. PepsiCo has been trading within a fairly narrow range over the past year, though it's up 15% since early March. If the company plays its cards right, it could continue its upward trajectory.