US Economy: Americans Back Off Bottled Water But Still Spend Money on Mcdonald's

Worrying economic times are prompting Americans to cut back on bottled drinks in favour of sipping free-of-charge tap water - but they can still find the money for Big Macs, beer and chocolate.

A mixed bag of corporate earnings reports on Wall Street included a setback for Pepsi and a profit warning from a discount retailer, CostCo. But demand appears to remain robust for "comfort" refreshments sold by the likes of McDonald's, Anheuser-Busch and Hershey.

As the credit crunch and the soaring cost of petrol punish consumers, Pepsi revealed a rare 1% fall in its US drinks sales including a drop in revenue from its signature cola and flat sales of previously fast-growing bottled water brands such as Aquafina.

"Consumers are eating more at home and are increasing their consumption of tap water as they seek to economize," said Massimo D'Amore, head of US beverages for Pepsi.

The company fared better overseas, pushing its overall quarterly profit up 9% to $1.07bn. It picked out British demand for Walkers crisps as particularly strong in spite of a price rise, with sales aided by an advertising campaign which emphasized the "great British potato".

Elsewhere, one of America's largest cash-and-carry chains, CostCo, warned its profits will be "well below" expectations because of inflationary pressures. It said surging energy prices had added to its costs and made sales of petrol less profitable at its filling stations.

CostCo's shares slumped by 12%, dragging down rivals such as Wal-Mart.

Discount retailers had been considered relatively prosperous because consumers "trade down" to their stores as they cut back on spending at more expensive food and clothes shops.

"There have been quite a lot of warnings on the food sector in the US recently," Jaime Vazquez, an analyst at JP Morgan, told Bloomberg News. "It's quite a consistent trend."

The world's biggest fast-food chain, McDonald's, reaped rewards from a new range of drinks including lattes and cappuccinos, and a broader breakfast offering - which includes southern-style chicken as a breakfast dish.

McDonald's second-quarter profits were $1.19bn compared to a $711m loss last year due to the one-off sale of its Latin American businesses. The company did particularly well in Europe where its like-for-like sales were up 7.4% - and it said British consumer still had a big appetite for its burgers.

"Even in spite of declining consumer confidence in the UK, our sales and guest counts remained strong," said Ralph Alvarez, McDonald's chief operating officer.

A week after it succumbed to a takeover by Belgium's InBev, the Budweiser brewer Anheuser-Busch beat analysts' forecasts with a 2% rise in quarterly profits to $689m, helped by the launch of a lime-tinged variety of Bud Light. The chocolate company Hershey's proved another healthy performer with a 5% rise in quarterly sales to $1.11bn.

By lunchtime in New York, the Dow Jones Industrial Average was down a single point at 11,600, supported by a fall of $1.46 in the price of a barrel of oil to just over $127.

"Oil is a positive but I think bigger than that is the earnings news is not as catastrophic as people were thinking," said Noman Ali, US equities portfolio manager at MFC Global Investment Management.