October 4, 2017 / 10:43 AM / a year ago

UPDATE 3-PepsiCo North American beverage sales take hit on weak Gatorade demand

* Q3 North America beverage sales down 3.4 pct

* Hurt by marketing missteps on Pepsi, Mountain Dew

* Shares recoup losses to trade up 0.6 pct (Adds analyst comment, updates share price)

By Sruthi Ramakrishnan

Oct 4 (Reuters) - PepsiCo Inc on Wednesday said weak demand for Gatorade and marketing missteps led to a drop in quarterly beverage sales in North America for the first time in two years, prompting it to trim its full-year organic revenue growth forecast.

Lower sales for Gatorade, which accounted for a fifth of total beverage volume in the region, was due to a relatively mild summer, while sales of other beverages were hurt by a slowdown in traffic at convenience stores, Chief Executive Officer Indra Nooyi said on a conference call.

Beverage volumes are expected to improve in the coming quarters as more seasonable weather patterns return, CFRA Research analyst Joe Agnese said.

Revenue at the North America beverage unit, the company's largest, fell 3.4 percent to $5.33 billion in the third quarter on a 6 percent drop in volume sales.

The decline was the first since PepsiCo started breaking out beverage sales in North America in the third quarter of 2015.

The company, which has had to pivot to consumers reaching for healthier drinks, also admitted to marketing slip ups.

"This summer, we directed too much of our media spending and shelf space to low-calorie, much smaller brands at the expense of our Pepsi and Mountain Dew trademarks," Nooyi said.

Soda consumption has been falling for the last 12 years as more people choose healthier options, forcing soda makers such as PepsiCo and Coca-Cola Co to bulk up their portfolio of non-carbonated drinks and launch low and no-calorie versions of their marquee soda brands.

PepsiCo did report a better-than-expected third-quarter profit, as it cut costs and saw a 3.2 percent rise in revenue from its Frito-Lay business, which sells snacks such as Cheetos and Doritos.

The company's shares were up 0.6 percent in afternoon trading, rebounding from earlier losses.

PepsiCo's selling and general costs dipped 0.7 percent in the quarter and Nooyi indicated costs would be cut further over the next few quarters.

Net income attributable to PepsiCo rose 7.6 percent to $2.14 billion, or $1.49 per share.

Excluding items, it earned $1.48 per share, beating the average analyst estimate of $1.43, according to Thomson Reuters I/B/E/S.

Net revenue rose 1.3 percent to $16.24 billion, coming in below the average analyst estimate.

The company cut its full-year organic revenue growth forecast to 2.3 percent, from at least 3 percent.

"We believe the market had expected a revision, but the magnitude was larger than expected," Morgan Stanley analysts wrote in a note.

However, PepsiCo raised its profit forecast by 10 cents to $5.23 per share, citing a smaller impact from the dollar. (Reporting by Sruthi Ramakrishnan in Bengaluru; Editing by Arun Koyyur and Bernard Orr)

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