Tickers in this Article: PEP, KO, HANS, FIZZ, DPS
PepsiCo Inc. (NYSE:PEP) reported earnings on February 11 which showed a strong rise in profits. The beverage and snack maker was led by its snacks division, while its domestic beverage performance saw declines, although international sales helped make up for this.

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Snacking on Earnings
Pepsi's earnings per share for the fourth quarter rose to 90 cents from 46 cents the same quarter last year. The net income was $1.4 billion, up from $719 million. Revenue increased to $13.3 billion from $12.74 billion. The maker of snack foods such as Doritos rode its strong snack brands and sales of its beverages internationally to these positive results. This offset the weakened domestic soft drink market, which has faced declines due to both the economy and consumers' shift toward healthier beverages.

For the full year 2009, Pepsi's revenue was flat at $43.2 billion, with a net income of $5.95 billion, up from $5.14 billion, along with earnings per share of $3.77 up from $3.21. However, many analysts note that after considering adjustments from both years, the gains are much lower. The company forecast EPS growth for 2010 of 11-13%. Considering the damage the recession has done to other food companies, Pepsi's results are fairly strong.

Bottler Buyout and Growth Horizons
Pepsi will buy out two of its bottlers in a $7.8 billion purchase. This should help speed its products to market. The distribution deal's ultimate efficiencies may take time to filter through to revenue and earnings, though. Bringing the distribution directly under the company's auspices is the opposite tack of nemesis Coca Cola (NYSE: KO). Coke, which also featured decent earnings recently, remains the soda king.

The real opportunity for Pepsi is in both its international and snack areas. Coke already has 75% of its sales from overseas, so Pepsi, which currently has 50% of its revenues from international sales, has even more room to grow.

Smaller Players in the Shadows
There is life beyond Pepsi and Coke in the beverage space. Hansen's Natural (Nasdaq:HANS), with its Monster energy drink, has shown the heady growth of a small company hitting on all cylinders. Hansen's throws off lots of cash, but its relative obscurity in the shadows of the two beverage giants may cause investors to overlook its promise as an investment. Another small soda company, National Beverage (Nasdaq:FIZZ), with its Shasta and Faygo drinks, has also carved out a thriving niche for itself. The debate is usually, "Coke or Pepsi?" to drink or buy the stock, but investors shouldn't forget Hansen's and National Beverage, a couple of under-the-radar companies worth drinking in, too.

Then there is the mid-sized beverage company, Dr. Pepper Snapple (NYSE:DPS), another good beverage play, which was mentioned just in passing in an esoteric piece on how companies would handle potential water scarcity. Water is, after all, the critical raw ingredient in the beverage industry, so potential scarcity is not something we think about every day -or ever.

Pepsi's Growth Path
Pepsi has a nice mix of both its snacks and beverages in its product portfolio. This differs from Coke's heavier emphasis on colas alone. This doesn't mean Pepsi is a better company, as both companies are thriving, it just means that Pepsi's growth path will take a different direction. The emphasis will be more international, will focus more on snacks, and even more of its "health" drinks.

Pepsi has a world-class brand; it pays a nearly 3% dividend yield and trades at roughly 18 times current earnings. With any kind of a stock price pullback, it will be a long-term bargain. Investors, you know what to do.

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