PepsiCo sees higher benefit costs in 2003

reuters.com Fri March 7, 2003 10:44 AM ET

NEW YORK, March 7 (Reuters) - PepsiCo Inc. PEP.N , the maker of Frito-Lay snacks, Pepsi-Cola drinks and Quaker cereals, said on Friday it expects pension and retiree medical costs to jump this year and that foreign currency fluctuations could hurt its results in the future.

The company also said there was no assurance it would be able to pass price increases on items such as ingredients, packaging materials and fuel along to its customers in the future. PepsiCo, in its annual filing, added, however, that when it decided to pass along price increases in the past, it has done so successfully.

The company said operations outside of the United States generate 34 percent of its net sales, of which Mexico, Britain and Canada contribute 19 percent.

Last year, the impact of declines in the Mexican peso "were substantially offset by increases in the British pound and the euro," the company said in its filing.

"If future declines in the Mexican peso are not offset by increases in the British pound and the euro, our future results would be adversely impacted," PepsiCo said in the filing with the U.S. Securities and Exchange Commission.

PepsiCo, like many other companies, is facing increased benefit costs. The company said it estimated pension expense for 2003 will be about $160 million, up from $111 million in 2002. It forecast retiree medical expense at about $120 million in 2003, up from $88 million last year.

The Purchase, New York-based company, which bought Quaker Oats Co. in August 2001, also said it expects to incur additional costs of about $50 million in 2003 to complete the integration of the two companies.

PepsiCo said that in 2002 it recorded a net loss of $5 million on the sale of the Quaker Foods North America bagged cereal business and the Frito-Lay International food businesses in Colombia and Venezuela.

PepsiCo said its pension assets include about 5.5 million shares of PepsiCo common stock with a market value of $202 million in 2002. In 2001, it had 4.7 million shares with a market value of $227 million. The company said its investment policy limits the investment in PepsiCo stock to 10 percent of the fair value of plan assets.

Shares of PepsiCo fell 10 cents to $37.50 Friday morning on the New York Stock Exchange, after falling as low as $37.02 earlier in the session. The shares hit a 52-week low of $35.15 in July 2002.