Jul. 22--An 8 percent gain in revenue and operating profits at Frito-Lay Inc. along with cost-cutting company wide helped PepsiCo Inc. meet analysts' second-quarter profit predictions.

Early Wednesday the nation's second-largest soft drink maker said it earned $1.66 billion, or $1.06 a share, in the three months ended June 13. That's down 2 percent from the $1.7 billion, or $1.05 per share, a year ago.

Excluding one-time costs for restructuring and other charges, the company said it earned $1.02 per share, beating a Wall Street estimate of $1 per share.

Revenue fell 3 percent to $10.6 billion, as recession-weary consumers continued to cut back, in some cases bypassing sports drinks for tap water, said Indra Nooyi, PepsiCo chairman and chief executive officer.

Analysts had expected revenue of $10.99 billion.

Plano-based Frito-Lay posted the largest gain in volume (amount of product sold) among PepsiCo's domestic and international divisions.

It was Frito-Lay's strongest volume growth in more than a year, said Richard Goodman, PepsiCo's chief financial officer.

Overall, Frito-Lay "performed ahead of our expectations," said John Compton, chief executive of the division that includes Frito-Lay.

However, sales at convenience stores -- a key outlet-- have been hurt by the drop in construction.

Nooyi said she's spoken with convenience store executives who noticed a big drop in the number of construction workers who would swing by the store in the morning to stock up on snacks and drinks before heading to the job site.

"There's no question we have lost that activity related to the construction worker as he was toiling in the hot sun," said Nooyi.

To help spur sales and better compete with lower-priced competitors, Frito-Lay will sell more 99-cent bags of snacks. The company had moved to a $1.29 bag.

In North and South America, revenue from drinks sales fell 7 percent, on a constant currency basis, as soda demand remained weak. And sales of Gatorade continued to fall as consumers turned to cheaper alternatives. Still, the lower-calorie sports drink G2 posted double-digit volume growth.

PepsiCo's diverse products and geographic reach helped it offset weakness in the U.S. economy, the company said.

Goodman said the company used higher net prices to cover commodity costs but that had not driven away consumers.

"The good news is that we kept consumers with us," he told The Associated Press in an interview.

Sales in the Quaker Foods North America division were soft with consumers trading down to less expensive private-label products to save money. PepsiCo said it saw volume drops in its oatmeal line.

In the company's North American beverages division, volume dropped 6 percent as consumers continued to pull back on spending on soft drinks.

PepsiCo is trying to boost its performance in this division and cut costs by buying up its two largest bottlers. It first offered $6 billion in April to buy out Pepsi Bottling Group and PepsiAmericas, but both bottling companies said the deal undervalued them and rejected it.

Nooyi declined to talk about the offers.

Foreign sales continued hurting PepsiCo in the quarter. The stronger dollar dragged down profit and revenue both by roughly 8 percentage points, Goodman said. Companies that do business outside the U.S. are hurt when the dollar gains strength since those international sales are translated back into fewer dollars.

The company reiterated its expectation that 2009 profit will grow by a mid- to high-single digit percentage over 2008 profit of $3.68 per share.

The Associated Press contributed to this report.

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