Pepsi Bottling Group Inc reported a higher-than-expected quarterly profit as price increases and stronger U.S. sales of carbonated soft drinks helped offset declining demand for pricier beverages.

Falling prices for aluminum also helped boost earnings, and the largest bottler of PepsiCo Inc beverages said full-year profit would probably come in at the high end of its forecast even though results in the current quarter might miss analysts' expectations.

Shares of Pepsi Bottling, which remained quiet on the bid it received from PepsiCo in April, fell 0.6 percent.

While soft drinks are selling well as consumers look for less-expensive treats, Pepsi Bottling said sales volume had fallen 1 percent in the United States and Canada and 4 percent overall as shoppers cut back on other beverages, such as bottled water.

That trend could also help Pepsi's rivals, especially Dr Pepper Snapple , as consumers switch to sodas. Dr Pepper has a higher exposure to carbonated soft drinks than Pepsi, Coca-Cola Co and their bottlers, which sell a wider variety of beverages.

Dr Pepper has beaten Wall Street's expectations for two quarters in a row as consumers looking to curb spending choose its lower-priced soft drinks such as A&W and 7UP. This was also the second consecutive quarter that Pepsi Bottling beat views.

Pepsi Bottling said selling drinks at restaurants and other venues remained challenging as consumers cut back on discretionary spending.

The company has seen some success in testing new sizes of beverages sold in stores. It plans to expand distribution of a 16-ounce soda can priced at 99 cents in the current quarter.

Pepsi Bottling, which has a positive outlook for the remainder of 2009 and beyond, said it expected full-year earnings toward the high end of its prior forecast of $2.30 to $2.40 per share.

It also plans to raise prices after the U.S. Labor Day holiday in September, as it typically does.

Argus Research analyst Erin Ashley Smith said this was the second time she had heard a food and beverage company sound a little more optimistic about U.S. trends for the second half of the year, following comments from General Mills last week.


PepsiCo, the world's No. 2 soft drink maker behind Coke, has offered $6 billion to buy the remaining stakes in its two largest bottlers, Pepsi Bottling and PepsiAmericas Inc . The bottlers have rejected Pepsi's offer as too low.

Pepsi Bottling did not give any update on PepsiCo's bid. Earlier on Wednesday, PepsiCo Chief Executive Indra Nooyi said the offer was still out to the bottlers.

The bid of $29.50 per share is below Pepsi Bottling's trading price of $33.45 on Wednesday afternoon.

We absolutely think they have more firepower as they negotiate with PepsiCo to raise their estimates again if they have to, said Bill Pecoriello, CEO of ConsumerEdge Research.

He expects the two sides to announce a deal over the next couple of weeks, with Pepsi raising its bid for Pepsi Bottling to the upper $30s. Pepsi Bottling could increase its full-year earnings outlook by another 10 cents per share, he said.

Pepsi Bottling's net income rose to $211 million, or 96 cents a share, in the second quarter ended June 13 from $174 million, or 78 cents a share, a year earlier.

Excluding items, Pepsi Bottling earned 78 cents a share. topping the analysts' average forecast of 73 cents, according to Reuters Estimates.

Net revenue fell 7 percent to $3.27 billion, lighter than the analysts' average estimate of $3.44 billion.

Selling, delivery and administrative expenses declined 10 percent. The company now expects to save about $265 million overall this year, up $15 million from an earlier view.

Pepsi Bottling expects sales to rise at a low single-digit percentage rate this year, excluding the impact of currency fluctuations. It forecast third-quarter earnings of $1.03 to $1.08 per share, below Wall Street's average view of $1.10.

(Reporting by Jessica Wohl in Chicago and Dhanya Skariachan in Bangalore; Editing by Lisa Von Ahn and Gerald E. McCormick)