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PepsiCo to invest $3 bln in Mexico, backs view

PepsiCo Inc will invest up to $3 billion in Mexico over the next few years to grow its Sabritas and Gamesa foods business and its beverage brands, the company said on Thursday.  

Earlier in the day, the company stood by its full-year 2008 earnings outlook and outlined marketing and product plans for its North American beverage unit, where it faces weaker soft drink sales.

PepsiCo said about $2 billion of the Mexico investment will be used to pay for research and development, manufacturing, distribution, marketing and advertising for its food businesses in the Mexican marketplace over the next five years. Part of the money will be used to introduce some of those food brands to the US market. The remaining $1 billion is earmarked for marketing and advertising for Pepsi beverages across Mexico for three years.

“For the last 100 years, Mexico has been a key market for PepsiCo and today’s news is the latest proof that we will continue to invest,” said Compton, who announced the investment at an event in Mexico City. PepsiCo, which said it has 40,000 employees in Mexico, said it is one of the country’s largest employers. Pepsi shares fell 3.5% to $50.29 on the New York Stock Exchange.

LESS THIRST FOR DRINKS

Pepsi said last month that soft drink volume in North America fell 3% in the fiscal third quarter, hurt by weak demand for beverages such as Pepsi and Sierra Mist and bottled water, as consumers cut back in a contracting economy. While it is difficult to forecast the future direction of that segment, CEO Indra Nooyi said the company’s Frito-Lay snack business remains healthy. “I think Frito-Lay is rock solid,” Nooyi said at the Morgan Stanley Global Consumer & Retail Conference on Thursday.

Pepsi also reaffirmed its previous forecast calling for 2008 earnings of $3.67 to $3.68 a share, excluding the impact of some items. The company said its largest bottler Pepsi Bottling Group’s restructuring plan and impairment charge is expected to hurt Pepsi’s reported full-year earnings by 7 cents a share, but would not impact its core earnings results.

Pepsi Bottling’s restructuring plan includes cutting some 3,150 jobs. The restructuring is expected to yield $150 million to $160 million in annualized pretax savings when completed, starting with savings of at least $70 million in 2009.

Rival Coca-Cola Co has had a more contentious relation with its largest bottler Coca-Cola Enterprises Inc, with public signs of a rift emerging last month over pricing. At that time, the news sent the bottler’s shares to a multiyear low on worries the tension could hurt its business. Soft drink bottlers have already been hit by high costs and weaker demand for beverages from consumers who are facing job cuts, a credit crunch and higher prices.

At the Morgan Stanley conference, PepsiCo outlined plans to tweak advertising and packaging. They also said they are poised to launch three flavors of zero-calorie SOBE LifeWater drinks when US regulators approve the plant-based sugar substitute stevia for use in bottled drinks.

The company already sells a stevia-sweetened drink in Peru. Pepsi Bottling shares were down 8.7% by the close. Coke shares were down 2.8% at $41.07, while its bottler Coca-Cola Enterprises’ shares were down 8.8% to $7.74 on the New York Stock Exchange. (Reuters)