PepsiCo leans on snacks to top estimates as beverages fizzle
Los Angeles: PepsiCo Inc.’s snacks are having to pick up more of the slack for its ailing beverages.
The company posted sales and earnings that topped analysts’ estimates last quarter, helped by an uptick in volume at its Frito-Lay business in North America. The snack growth helped offset continued declines at the Purchase, New York-based company’s drinks business. Still, a disappointing forecast suggests that PepsiCo has more struggles ahead.
The story is familiar: As sugar-wary consumers turn away from sweet beverages, the company has relied more on food to bolster results. The maker of Mountain Dew and Cheetos is also benefiting from cost cuts, with chief executive officer Indra Nooyi pursuing at least $1 billion in annual savings. “We delivered these results in the midst of a dynamic retail environment and rapidly shifting consumer landscape,” Nooyi said in a statement.
PepsiCo’s success with snacks is a sign Frito-Lay is innovating—examples include Organic Doritos and yogurt-based crackers—while simultaneously strengthening its core brands. But it hasn’t been able to pull off the same trick on the beverage side. North America Beverage sales volumes were down 2% in the fourth quarter.
Part of the problem may have been that PepsiCo shifted too much of its focus away from core brands toward newer drink concepts, according to chief financial officer Hugh Johnston. “We think that they’re still terrific ideas—they’re still tracking well,” he said in a phone interview. “But we can’t take our eye off the ball on the bigger brands.”
Core earnings amounted to $1.31 share in latest quarter. Analysts estimated $1.30, on average.
Revenue was $19.5 billion, compared with analysts’ prediction of $19.4 billion.
PepsiCo’s forecast for this year was less impressive. The company sees earnings of $5.70 a share, 8 cents short of the average Wall Street estimate.
Still, the company’s projection is higher than it has guided in the past five years, Johnston said.
In India, PepsiCo has grown at a “mid single digit” rate in October-December, Nooyi said on Tuesday. India and Mexico are the only two markets that grew at ‘mid single digit’ rate during the quarter. Bloomberg
Sounak Mitra of Mint contributed to this story.
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