* Targets incremental savings of $1.5 bln over 3 yrs

* Global Beverage Group chief Massimo d'Amore to retire

* Plans to cut 8,700 jobs

* Shares down 3.5 pct

By Martinne Geller

Feb 9 (Reuters) - PepsiCo Inc forecast lower-than-expected 2012 earnings in a "transition year" in which it plans to cut thousands of jobs to save money, and increase advertising to reinvigorate North American soda sales.

The maker of Sierra Mist soda, Tropicana juice and Gatorade sports drinks saw its shares fall 3.5 percent in midday trade, with investors unsure if the moves announced by Chief Executive Indra Nooyi would be enough to stem Pepsi's decline in U.S. market share 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."

Nooyi, who has led the soft drink and snack company for more than 5 years, 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 to expand into healthier snack options such as hummus and pita chips.

At a much-anticipated meeting with investors on Thursday, following a six-month strategic review of the business, Nooyi took responsibility for a series of missteps -- from under-investing in the North American drink business to over-promising on Wall Street.

"Anytime you make a mistake ... it's the CEO's responsibility," Nooyi told reporters after the meeting. "The buck stops with me."

She also repeated that a breakup of the company was not in shareholders' best interest, aiming to quell speculation that has simmered for some time.

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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.

"We do not believe that the key elements of today's announcement will fully satisfy investors' expectations," said Wells Fargo analyst Bonnie Herzog. "Moreover, commentary from the meeting confirms our long-standing view that PepsiCo's turnaround is a multi-year initiative."

PepsiCo shares, which had gained nearly 4 percent in the weeks leading up to Thursday's meeting, were down 3.6 percent at $64.33 in afternoon trade on the New York Stock Exchange.

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-than-expected step back in earnings from 2011, said James Tierney, chief investment officer at W.P. Stewart. "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.

"Resetting the earnings base in 2012 is the right thing to do for the long-term health of the business," said Consumer Edge Research analyst Bill Pecoriello. "Now the key will be the effectiveness of the execution and stepped-up spending."

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.

• A Permanent Economic Emergency