PepsiCo announced a 14% rise in Q3 profits, excluding the impact of the Quaker acquisition. Including the one-off charge for the integration of Quaker Oats, PepsiCo's profits were down 17%. But PepsiCo's continued diversification into drinks other than cola is providing it with plenty of opportunities for growth, while its strong hold on the snack sector gives extra protection from the downturn in the on-trade.

In Q3 PepsiCo earned US$866m, before US$248m in charges relating to the integration of the Quaker Oats business, which was acquired on August 2 this year. This represents the upper limits of analysts' expectations of 44 cents to 48 cents per share. However, the headline figures appear much less encouraging with third quarter net income falling 17% to US$627m or 34 cents per share. The market responded positively, though, with PepsiCo shares up 95 cents at US$49.88 in late New York Stock Exchange trading.

Net sales in the core soft drinks business increased 8% to US$6.91 billion from US$6.42 billion last year. Forecasts continue to be bullish for both the company as a whole, and specifically in the soft drinks market, where the fight continues against long-time archrival Coca-Cola.

PepsiCo has already stolen a march on Coca-Cola in many key emerging categories. When PepsiCo acquired Quaker, it gained control of the leading brand in the Energy and Sports drinks category, Gatorade. It also has a lead on its rival in the bottled water market: Coca-Cola's Dansani brand is ranked just sixth in the US. And, after PepsiCo outbid Coca-Cola for the South Beach Beverage Company, it is further ahead in New-Age beverages as well.

Looking at share performance over the year, the story is clear. Even in the current market, PepsiCo shares have slipped less than 1% since the beginning of the year, whereas Coca-Cola stock has fallen by 24%. Coca-Cola is certainly more vulnerable to the current downturn in the entertainment industry, deriving a larger proportion of its sales from restaurants, bars and hotels.

Meanwhile, PepsiCo's increasingly diverse product range provides it with some protection from poor sales in any one sector. Frito-Lay is still going strong, taking full advantage of growing markets in Europe and South America, while the continuing focus on non-cola carbonated drinks should keep the drinks division growing steadily into the future.

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