PepsiCo's portfolio transformation driving growth

by Monica Watrous
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PepsiCo Baked Cheetos, Doritos, Tostitos
Spurred by the success of Baked Lays, PepsiCo has broadened its Baked lineup to include Baked Doritos, Baked Tostitos and Baked Cheetos.

PURCHASE, N.Y. — In the past decade, PepsiCo, Inc. has made significant strides in a series of commitments set forth in 2006. As part of its Performance with Purpose initiative, the Purchase-based company has reduced the average sodium in food products by 11% per serving and removed more than 2,300 tonnes of sodium from food brands in major markets, said Indra Nooyi, chairman and chief executive officer.

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

“We have reduced the average amount of saturated fat per serving by more than 15% in key global brands in a number of our major markets, including the United States, United Kingdom, China and Turkey,” Ms. Nooyi said during a Sept. 29 earnings call with financial analysts. “We are making strides to reduce added sugars in our beverages through reformulation. Our transformation efforts to date have resulted in a portfolio where we drive approximately 45% of our net revenue from products that we refer to as guilt-free. Those products include diet and other beverages that are below 70 calories per 12 oz and snacks with low levels of sodium and saturated fat. And a full 27 points of the 45 points is made up of what we refer to as everyday nutrition, which are products with positive nutrients like grains, fruits and vegetables, protein, unsweetened tea and water.”

PepsiCo’s health and wellness efforts are helping to drive strong year-to-date results. Net income attributable to PepsiCo in the third quarter ended Sept. 3 was $1,992 million, equal to $1.37 per share on the common stock, up 274% from income of $533 million, or 36c per share, in the prior-year period. Results reflected the impact of impairment charges in the comparable quarter related to the deconsolidation of operations in Venezuela.

Pepsico Propel Fitness Water
PepsiCo's Propel Water is seeing renewed success in North America.

Net revenue fell 2% to $16,027 million from $16,331 million. Excluding the impacts of foreign exchange translation and structural changes, organic revenue grew 4.2%.

“Specifically we had more than 3% organic volume growth in global snacks and more than 2% organic volume growth in global beverages,” Ms. Nooyi said. “On the strength of our year-to-date results and our outlook for the fourth quarter, we have increased our full-year core e.p.s. target to $4.78 from our previous target of $4.71…

“In addition to our financial results, we are also delivering on other key performance metrics. Innovation ran at approximately 9% of net revenue in the quarter.”

PepsiCo Tropicana Farmstand juice, Naked cold-pressed juices
Recent innovation with a health and wellness focus include Carrot Pineapple Mango Tropicana Farm Stand juice and Naked Pressed cold-pressed juices.

Examples of recent innovation with a health and wellness focus include Carrot Pineapple Mango Tropicana Farm Stand juice with no added sugar and Naked Pressed cold-pressed juices.

“Our Naked super-premium fruit and vegetable juices and coconut waters are loved by consumers for their great flavor, all-natural ingredients and no added sugars or preservatives,” Ms. Nooyi said. “We have doubled Naked’s net revenue over the last six years and grown estimated annual retail sales to over $1 billion.”

Another health and wellness brand set to reach $1 billion in sales is Sabra, currently an $800 million business in the United States.

PepsiCo Sabra products
Sabra is set to reach $1 billion in sales.

“Sabra built up the strength of our highly popular hummus and established a range of authentic products that include guacamole, salsa, baba ghanoush, and Greek yogurts dips and spreads,” Ms. Nooyi said.

The company’s Propel Water by the Makers of Gatorade, a zero-calorie sports beverage enhanced with electrolytes and minerals, is seeing renewed success in North America, with year-to-date volume up 6%, she added.

“We have also successfully expanded what we refer to as our guilt-free product lineup,” Ms. Nooyi said. “Pure Leaf Tea is an example, a premium line of ready-to-drink teas brewed and steeped simply and authentically from leaves picked at their freshest. Since this launch in 2012, Pure Leaf has grown to more than $650 million in estimated annual retail sales. We are now elevating Pure Leaf into a super-premium line under the Tea House collection.

Pepsico Pure Leaf Tea Tea House
PepsiCo is elevating its Pure Leaf tea brand into a super-premium line under the Tea House collection.

“Our Baked lineup is another example of how we are transforming our portfolio. Spurred by the success of Baked Lays, we have broadened our Baked lineup to include Baked Doritos, Baked Tostitos and Baked Cheetos and have expanded the lineup to nine international markets where there is a lot of opportunity for further growth and market expansion.”

She added, “So it is the breadth of our evolving product portfolio and our ability to innovate against it that enables us to generate consistent organic revenue growth.”
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