Has Pepsi stock lost its fizz?

There were plenty of things to like about PepsiCo’s (NYSE: PEP) strong second-quarter results. For the quarter, net income increased 12 percent, with sales growing 8 percent. Snack sales increased by 6 percent, while beverages were up 10 percent. Still, weak sales of some of its snacks, such as Quaker’s Crisp’ums and Fruit & Oatmeal Toastables, caused Pepsi to lower its earnings outlook.

Many see Pepsi’s snack portfolio, featuring brands such as Tostitos, Ruffles, Lay’s, Fritos, Doritos and Cheetos, as an advantage over rival Coca-Cola (NYSE: KO). PepsiCo is more diversified, though with Atkins and South Beach low-carb diets all the rage, snacks have been a tougher sell.

In the drink category, Pepsi’s vanilla-flavored Pepsi, launched last year, is doing well. Many are likely waiting to see how the new mid-calorie, mid-carb Pepsi Edge fares. There are already rumors that Coke’s competing C2 is gearing up to be a high-profile flop, and not least of the reasons is the predicted abatement of interest in low-carb options. And of course, an ebbing of the low-carb craze will bode well for Pepsi’s snack line.

Maybe PepsiCo’s slightly lowered guidance is a tad disappointing after last year’s stellar 21 percent earnings gain, but when thinking about the long term, Pepsi has shown that it’s resilient and in tune with consumer trends and innovations. Given this, the recent troubles may be just a temporary dip.

Tax tips use can use now

These tax tips may help you pay less to Uncle Sam in 2004.

• If you use your auto for charitable purposes, you can deduct 14 cents per mile for qualified charitable travel. You can also deduct out-of-pocket expenses when serving a qualified organization. If you use your auto for medical travel, such as for doctor visits, medical travel is deductible at 14 cents per mile in 2004. If you travel far for medical treatment, airfare and lodging can also be deductible.

• Donating your old car can get you a great deduction.

• Consider shifting your income to your children, perhaps by giving them appreciated stock. You might want to wait until a child turns 14 (to avoid the kiddie tax rules). If you gift the stock to a child and the child then sells the stock, the long-term gain will be taxed at the child’s tax rate, which is likely much lower than your 15 percent rate. Depending on the child’s other income and the amount of the gain, the tax on the gain could be zero.

• Look into the new depreciation rules on assets purchased this year. You’ll receive a 50 percent first-year bonus depreciation for qualifying assets purchased after May 5, 2003, and you might be able to deduct the full cost of business equipment purchased up to $100,000 in the first year. Both of these benefits are set to expire at the end of 2004.

• If you’re an unincorporated business owner, consider putting your kids or other lower-income family members on the payroll. Kids younger than 18 won’t have to pay any Social Security/Medicare (FICA) taxes on their wages, and those younger than 21 aren’t subject to Federal Unemployment Tax Act (FUTA) taxes. With the 2004 standard deduction at $4,850, you can pay that amount to your child with no income tax consequences.

Learn more at www.irs.gov. If you need a financial adviser, get tips on finding one at www.fool.com/fa/finadvice.htm.

Ask the Fool

Q: What does it mean if a company is “highly capitalized”? – R.M., Tuscaloosa, Ala.

A: It might suggest that a company is asset-heavy, overloaded with unproductive assets such as cash. Lots of cash is generally good for a company, but if it’s just sitting around unused, that’s not ideal.

The term might also suggest that the firm’s market capitalization is too high. (Market cap is the total price tag the market slaps on a company; it’s calculated by multiplying the current share price by the total number of shares.)