PepsiCo Inc

forecast lower-than-expected 2012 earnings in a transition year in which it said it would cut thousands of jobs to save money and increase advertising to reinvigorate sales in North America.

The maker of Sierra Mist soda, Tropicana juice and Gatorade sports drinks saw its shares fall more than 4 percent in morning trading, with investors unsure if the moves would be enough to stem Pepsi's decline in U.S. marketshare versus its archrival Coca-Cola .

Hopefully these cost saves and reinvestments will pay off, but it will take some time before we really know, said Edward Jones analyst Jack Russo. The company has great brands and wonderful overseas presence, but investors want points on the board sooner rather than later.

PepsiCo also said the chief of its Global Beverage Group, Massimo d'Amore, would retire. The company recently named former Frito-Lay chief Albert Carey to run the business.

PepsiCo, based in Purchase, New York, expects to cut 8,700 jobs, or 3 percent of its global workforce, across 30 countries as part of a plan to save an extra $1.5 billion over the next three years.

It also plans to increase advertising and marketing by $500 million to $600 million this year, with the majority being spent on North American brands including Pepsi, Mountain Dew, Sierra Mist, Gatorade and Tropicana.

PepsiCo also reported a higher-than-expected fourth-quarter profit.

CEO Indra Nooyi, who took over the company in late 2006, has come under pressure from Wall Street for a stagnant stock price and a lagging North American beverage business. She has been criticized for taking her eye off the core business of sodas and salty snacks such as Fritos and Doritos chips to expand into healthier options such as hummus and drinkable oatmeal.

She defended her choices at a meeting with investors on Thursday.

It's an 'and' game, not an 'or' game, Nooyi said.

TRANSITION YEAR

PepsiCo forecast a 5 percent decline in 2012 earnings.

Coupled with an expected 3 percent hit from currency exchange rates, that means a bigger step back in earnings from 2011 than expected, James Tierney, chief investment officer at W.P. Stewart, said. But this will take time and we have three to four quarters before we know if it is working.

The positive is they are doing something. More ad spending is a positive and costs cuts are encouraging, he said.

PepsiCo said it plans to increase its ad budget as a percentage of sales, a measurement that has historically lagged Coke's.

The company also said it would streamline its portfolio, either turning around or divesting businesses that are underperforming.

For 2013, PepsiCo expects earnings to increase at a high single-digit rate.

The cost cuts, which will also include consolidating manufacturing and warehouse facilities, should result in savings of $1.5 billion by the end of 2014, in addition to $1.5 billion it already planned to save over that period.

PepsiCo also announced a 4 percent increase in its annual dividend and an increase in its share buybacks, forecasting at least $3 billion in repurchases.

The company reported a fourth-quarter profit of $1.42 billion, or 89 cents per share, up from $1.37 billion, or 85 cents per share, a year earlier.

Excluding items, PepsiCo earned $1.15 per share, topping analysts' average estimate of $1.13 per share, according to Thomson Reuters I/B/E/S. Revenue rose 11 percent to $20.2 billion.

Looking forward, the company said it expects a 7 percent increase in the cost of commodities this year, adding that it does not expect to be able offset the full magnitude of that rise with price increases.

PepsiCo shares were down $2.87, or 4.3 percent, at $63.87 on the New York Stock Exchange.

(Reporting by Martinne Geller in New York; Editing by Dave Zimmerman and Maureen Bavdek)

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