PepsiCo revenue flat but guides stronger growth ahead
New CEO sees ‘no need to shed or acquire businesses’ and sets new restructuring plan
PepsiCo Inc.’s new Chief Executive Ramon Laguarta said he has no plans to break up the snacks and drinks giant, nor divest the company’s bottling operations, after completing a four-month review of the global business.
“We believe our product and geographic portfolios make sense. And we do not currently see the need to shed or acquire businesses in any significant way,” Mr. Laguarta said on a conference call Friday after PepsiCo reported quarterly results.
Last year, PepsiCo agreed to buy seltzer-machine maker SodaStream International Ltd., while rival Coca-Cola Co. bought the Costa Coffee chain. PepsiCo has also faced questions from Wall Street about whether it would keep its food business, which sells Doritos, Sabra hummus and Quaker Oats, together with its drinks business, which includes Gatorade, Aquafina and Mountain Dew.
The PepsiCo veteran, who took over as CEO in October, laid out his plans Friday: ramp up investments in advertising, technology and supply chains to boost growth and capture market share. The company also started a new restructuring program that will shed an undisclosed number of jobs and factories over several years.
The Purchase, N.Y., firm said Friday it expects to incur about $2.5 billion in pretax restructuring charges through 2023, with most of the charges coming from severance and other employee costs. The company’s 2018 results included $138 million of restructuring costs, and it expects to incur $800 million in the current year.
PepsiCo didn’t elaborate on the extent of job cuts or plant closures.
The maker of Mountain Dew, Quaker Oats oatmeal and Tropicana orange juice also said it expects organic revenue—which excludes currency fluctuations, acquisitions and divestitures—to rise 4% this year, compared with 3.7% in the recently ended year. Core earnings excluding currency fluctuations are expected to fall by about 1%, driven by items including a higher tax rate and investments being made this year.
In 2019, PepsiCo plans to make substantial investments in areas such as adding manufacturing capacity and advertising and marketing, Chief Financial Officer Hugh Johnston said on the earnings call. The company is fresh off sponsoring the Super Bowl LIII halftime show and airing commercials during the National Football League championship game. The company has been working to increase investments in Pepsi and Mountain Dew beverages to lift sales in North America.
PepsiCo expects to spend about $4.5 billion on capital expenditures in 2019, an increase of more than $1 billion from the previous year. Mr. Laguarta said the company is “investing in brand building, selling capacity and supply chain capacity.”
The company will also be hiring more personnel to market and deliver products to retail customers, Mr. Johnston told The Wall Street Journal in an interview Friday. He didn’t say how many.
Mr. Laguarta, who took over as CEO from Indra Nooyi, has been working to focus the company on priorities including accelerating organic revenue growth and managing costs, and using the resulting savings to reinvest in the business. To push sales growth, PepsiCo has looked at increasing advertising, broadening product lines and making changes to packaging.
“There is further growth and further opportunities for us to grow share” in PepsiCo’s categories, the CEO told analysts on the call. “And the process started with, let’s see how we can refocus the discretionary funds that we have in each one of our business[es] against the growth opportunities.” When asked by an analyst about potentially separating the company’s snacks and drinks business, Mr. Laguarta underscored the benefits of keeping the operations together. He said the company is able to show its strength, like around the Super Bowl, when it is able to create displays with products from each category.
Mr. Laguarta also told analysts the company can compete without selling off or refranchising its North American bottling and distribution operations, a move that Coca-Cola completed in 2017. He said the North American drinks business “will play a very important role in the future of PepsiCo, and we’re convinced it will drive very good results for us.”
The company will be integrating its bottling business into its five new regional divisions under its North America beverages business, the company told employees Friday. Trade publication Beverage-Digest earlier reported the bottling changes.
Shares of PepsiCo rose 3% to $115.91 in Friday trading after the company forecast higher growth for this year. It said fourth-quarter revenue was flat from a year earlier though it benefited from higher prices in its North America units. Because of higher transportation costs, the beverage maker had planned to raise prices on some of its Frito-Lay products in October.
Earlier this week, Coca-Cola Co. said it expects sales to slow in 2019. In the latest quarter, CocaCola said tea and coffee sales volume rose while soda sales volume fell. Shares in the company fell 8.4% to $45.59 on Thursday.
PepsiCo said revenue was $19.52 billion in the fourth quarter, in line with estimates from analysts polled by Refinitiv. Organic revenue rose 4.6%.
Among PepsiCo segments, Frito-Lay North America saw the biggest increase in the quarter, with revenue climbing 3.6%. Revenue rose 1.8% in the company’s North American beverages division.
PepsiCo reported a fourthquarter profit of $6.85 billion, or $4.83 a share, which included a $4.93 billion income-tax benefit. For the comparable quarter a year prior, the company posted a loss of $710 million, or 50 cents a share.
Excluding one-time items, earnings were $1.49 a share, which met analysts’ estimates.