PepsiCo’s higher costs drag shares, overshadow rebound

Indra Nooyi managed to return PepsiCo Inc.’s key drinks business to growth in her final quarter leading the company, but it wasn’t enough to satisfy investors.

Shares of the snack and beverage maker slid on Tuesday after the company cut its full-year profit forecast and said it had no plans to invest in cannabis. PepsiCo also reported higher transportation and aluminum costs and said it would raise prices on snacks and drinks.

“Were main concerned by mounting commodity pressures ,” Wells Fargo Securities LLC analyst Bonnie Herzog said in a research note on Tuesday. She also cited higher costs and currency pressures, while noting the beverage unit’s performance was encouraging.

Nooyi is leaving PepsiCo’s top job on Wednesday after 12 years. She’s passing the reins to deputy Ramon Laguarta. In the third quarter, PepsiCo’s North American beverage unit returned to growth, helping the company beat earnings estimates. That unit, however, also saw operating profit erode on higher costs.

The shares dropped as much as 2.7 per cent to US$107.70 in New York, the biggest decline in almost two months, before paring the loss to about one per cent. The stock had fallen 7.7 per cent this year through Monday, while Coca-Cola Co. rose 0.8 per cent over the same period.

A lower tax rate helped boost core earnings per share to US$1.59, which is two cents above the average prediction from analysts. PepsiCo warned that full-year core earnings per share would be US$5.65, down from its prior expectation of US$5.70, citing the strong dollar.

Along with posting growth overseas, the maker of Mountain Dew and Tostitos got a boost from its Frito-Lay unit, the salty-snack powerhouse that has buoyed PepsiCo amid a drop in soda consumption.

Nooyi had vowed to fix the beverage unit. The business has been a sore spot for PepsiCo as consumers eschew soda. In addition to pursuing cost cuts to boost profit, Nooyi has diversified the company ’s portfolio, adding healthier options to adapt to changing preferences.

PepsiCo’s results showed that its core brands still have some strength, with a boost from Pepsi, Mountain Dew and Gatorade.