Pepsi is watching the economy for signs of a slowdown and also dealing with higher raw material prices, said Pepsi chairwoman and CEO Indra Nooyi.

"We are well aware of the challenges in 2008, and we know full well it's going to take more than a single action or initiative to address these challenges," Nooyi said.

Pepsi, though, has a solid foundation of global brands, she said. "We do expect the resiliency of our categories and the strength of our brands to be a substantial source of advantage," Nooyi said.

In 2007, Pepsi revenue rose 12.3% to $39.5 billion, and net income rose 2.1% to $3.4 billion. Pepsi earnings per share increased 12.7% excluding one-time items, which included $129 million in noncash tax benefits in 2006.

Much like Coca-Cola, Pepsi's growth has been spurred by overseas sales. Beverage volume grew at double-digit rates in the Middle East, China, Brazil, Argentina and India.

In North America, beverage volume has been flat with gains in noncarbonated drinks, such as Gatorade and Lipton teas, offsetting declines in carbonated soft drinks.

Unlike Coca-Cola, though, Pepsi also has food divisions, Frito-Lay and Quaker, which contributed to revenue and operating profit gains in 2007. Pepsi expects continued growth abroad for carbonated beverages. Pepsi executives also said Wednesday that they see growth in health-conscious beverage and snack categories the company calls "better for you" and "good for you" segments.

Pepsi recently broadened its Gatorade lineup with G2, a low-calorie sports drink, and Tiger, a Gatorade extension built around golfer Tiger Woods.

In addition, Pepsi is responding quickly to two new product areas that are boosting Coke sales -- Coke Zero, a no-calorie drink aimed at winning male consumers to diet colas, and Glaceau, a company bought last year by Coke that makes Vitaminwater and Smartwater.

Pepsi will step up marketing efforts for Diet Pepsi Max, a no-calorie cola packed with ginseng and extra caffeine, and SoBe Life Water, a line of vitamin-enhanced beverages.

Diet Pepsi Max was launched a year ago and SoBe Life Water in 2006, but Massimo d'Amore, chief executive of PepsiCo Americas Beverages, said the real push started earlier this month with the Super Bowl.

Both drinks had their own Super Bowl ads. The SoBe Life Water ad featured model Naomi Campbell and a line of lizards, which are part of SoBe's logo, dancing to Michael Jackson's Thriller.

The ads created awareness and already are driving sales, d'Amore said in an interview Wednesday after Pepsi's presentation. "Naomi Campbell and the lizards, together with Thriller, are doing miracles," he said.

Pepsi is following the Super Bowl ads with broader campaigns that include online marketing and distribution displays, d'Amore said. "The Super Bowl ads are not the endgame," he said. "What they are is the beginning of a dialogue with consumers."

From the March 3, 2008, Prepared Foods e-Flash