PepsiCo sees sales rise in North America

by Monica Watrous
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PepsiCo raised its earnings outlook for the year.

PURCHASE, N.Y. — PepsiCo’s third-quarter profit sank on impairment charges related to its Venezuelan operations, but the company raised its earnings outlook for the year on positive year-to-date performance and productivity savings.

For the third quarter ended Sept. 5, net income attributable to PepsiCo was $533 million, equal to 36c per share on the common stock, down 73% from $2,008 million, or $1.32 per share, for the prior-year period. Results included the adverse impact of foreign currency translation and a change in accounting for Venezuela operations that resulted in non-core pre- and after-tax charges of $1.4 billion. In constant currency, earnings per share increased 14%, the company said.

Net revenue for the quarter declined 5% to $16,331 million from year-ago revenue of $17,218 million, reflecting a 12-percentage-point unfavorable impact from foreign exchange translation.

Organic revenue grew 7.4%, which included 10% growth in global snacks and 5% growth in global beverages, beating analysts’ expectations, the company said.

Indra Nooyi, PepsiCo c.e.o.
Indra Nooyi, chairman and c.e.o. of PepsiCo, Inc.

“We are proud to report that during the third quarter PepsiCo was the largest contributor to U.S. retail sales growth among all food and beverage manufacturers with over $400 million of retail sales growth in all major channels,” said Indra Nooyi, chairman and chief executive officer of PepsiCo, Inc., during an Oct. 6 earnings call with financial analysts. “This was double the next largest contributor to growth.”

Productivity gains are helping PepsiCo mitigate headwinds in international markets. The company said it is on track to deliver approximately $1 billion in productivity savings and $9 billion in cash returns to shareholders.

During the quarter, the Frito-Lay North America segment saw its operating profit increase 6% to $1,085 million, reflecting productivity gains and lower commodity costs that partially were offset by operating cost inflation and higher advertising and marketing expense. Net revenue rose 1% to $3,555 million.

The Quaker Food North America segment reported flat operating profit at $150 million for the quarter, as productivity gains, lower commodity costs and favorable product mix partially offset the gain of divesting a cereal business the prior year, operating cost inflation and higher advertising and marketing expense. Revenue declined 0.5% to $583 million.

“Quaker has gained value share in both hot and ready-to-eat cereal both in the quarter and year to date,” Ms. Nooyi said.

For the North America Beverages segment, operating profit advanced 14% to $860 million, and net revenue climbed 4% to $5,360 million, driven by productivity gains and lower commodity costs that partially were offset by operating cost inflation and higher advertising and marketing expense.

“North America Beverage had a terrific quarter in which we grew our organic volume by 3%, organic revenue by 5% and core constant currency operating profit by 10%,” Ms. Nooyi said. “During the quarter we held value share in liquid refreshment beverages and gained value share across important subcategories including ready-to-drink tea and water.”

Non-carbonated beverage volumes surged nearly 10%. Carbonated soft drink volumes slid 1.9%, which included a 1% decline in regular sodas and a 6.5% drop in diet sodas. The company said it is too early to measure the success of its new aspartame-free Diet Pepsi.

For the full year, PepsiCo expects mid-single-digit organic revenue growth and has raised its target for core constant currency earnings per share growth to 9% from the previous guidance of 8%.
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