PepsiCo Inc

reported weaker-than-expected quarterly revenue on Thursday, hurt by falling North American soft drink sales, and cautioned it did not expect a major revival of consumer spending next year.

Shares of the world's second-largest soft drinks maker slipped 1.5 percent, while larger rival Coca-Cola Co fell 0.7 percent.

Our consumer research shows that the age of thrift that we're seeing in consumers in the U.S. and Western Europe will continue in 2010, and that consumers will continue to remain very careful about their spending, said Chief Executive Indra Nooyi on a conference call.

In emerging markets of Asia and South America, Nooyi said consumer spending should grow, but not at a pace that entirely offsets the slow growth in the West.

The company, which is buying Pepsi Bottling Group Inc

and PepsiAmericas Inc

for $7.8 billion, also affirmed its 2009 earnings target and set a 2010 earnings target ahead of analysts' expectations.

Net income in the third quarter rose to $1.72 billion, or $1.09 per share, from $1.58 billion, or 99 cents per share, a year earlier.

Excluding items, PepsiCo earned $1.08 per share, topping analysts' average estimate of $1.03, according to Thomson Reuters I/B/E/S. The profit surprise was mainly driven by a lower-than-expected tax rate, according to JP Morgan analyst John Faucher.

Revenue fell 1.5 percent to $11.08 billion, missing analysts' average expectation for $11.25 billion.

Morningstar analyst Philip Gorham said the lower-than-expected revenue likely prompted investor concern over the company's ability to grow its sales in the future.

Sales by volume rose 2 percent in PepsiCo's snacks business, both in the Americas and internationally. In the drinks business, volume was up 0.5 percent, with a decline of 6 percent in the Americas and a rise of 9 percent internationally.

2010 -- A YEAR TO INVEST

Buying its two largest bottlers will consolidate 80 percent of PepsiCo's North American drinks volume, which it has said will speed decision-making and eliminate friction between the companies. Pepsi said it still expects the deal to close in late 2009 or early 2010.

Nooyi said 2010 will be a year to reinvest for the company, whose products range from sodas and Tropicana juices to Frito-Lay snacks and Quaker oatmeal.

Pepsi plans to invest in a few big global brands as well as in research and development to make healthier products, expand its emerging market infrastructure and make tuck-in acquisitions, she said.

The company forecast 2010 earnings-per-share growth of 11 percent to 13 percent on a constant currency basis, including a modest gain from the bottler acquisitions.

If it performs better than that range, Chief Financial Officer Richard Goodman said PepsiCo would make additional strategic broad-based investments in its business.

Faucher called the 2010 target conservative, even though it would deliver earnings above Wall Street's average estimate of $4.11 per share, according to Thomson Reuters I/B/E/S.

PepsiCo said it still expected 2009 net revenue and core earnings per share to rise at a mid-to-high-single-digit percentage rate on a constant currency basis. Its 2008 core earnings were $3.68 per share.

PepsiCo shares were down 91 cents at $60.26 in late morning trade.

(Reporting by Martinne Geller; Editing by Lisa Von Ahn, Dave Zimmerman)

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