Pep­siCo’s or­ganic vol­ume stag­nates, but earn­ings rise

The Star Early Edition - - INTERNATIONAL - Jen­nifer Ka­plan

PEP­SICO is get­ting a lift from higher prices at its Frito-Lay busi­ness and a push to cut costs, even as vol­ume growth for its snacks and drinks stalled in North Amer­ica. The seller of Dori­tos, Sabra hum­mus and Moun­tain Dew posted sec­ond-quar­ter earn­ings of $1.50 (R20.10) a share yes­ter­day, ex­clud­ing some items. That ex­ceeded the $1.40 av­er­age of an­a­lysts’ es­ti­mates.

While the food-and-bev­er­age gi­ant ben­e­fited from rais­ing prices on chips and other snacks, or­ganic vol­ume didn’t in­crease in the Frito-Lay di­vi­sion. Pep­siCo did har­ness growth from new, bet­ter-foryou prod­ucts and con­tin­ued its pro­gramme of cost cuts, two ini­tia­tives led by chief ex­ec­u­tive In­dra Nooyi.

The mea­sures aim to an­nu­ally save at least $1 bil­lion, which the com­pany is rein­vest­ing in re­search and devel­op­ment and in­no­va­tion.

The gains come af­ter a dis­ap­point­ing first quar­ter for Frito-Lay, when the unit saw its first vol­ume de­cline in North Amer­ica in about five years.

The com­pany said at the time that the de­cline was tem­po­rary, im­pacted by the tim­ing of Easter and New Year. It raised its 2017 earn­ings tar­get to $5.13 a share, ex­clud­ing some items, from a pre­vi­ous fore­cast of $5.09.

Nooyi cited “pock­ets of macroe­co­nomic chal­lenges and in­creas­ingly dy­namic re­tail and con­sumer land­scapes” in a state­ment ac­com­pa­ny­ing the re­sults.

Shares of Pur­chase, New York-based Pep­siCo rose less than 1 per­cent to $114.75 in early trad­ing. The stock had climbed 9.2 per­cent this year to Mon­day’s close. Sales gained 2 per­cent to $15.7bn last quar­ter. That beat the av­er­age pro­jec­tion of $15.57bn.

Pep­siCo has em­pha­sised ex­pan­sion of its so-called ev­ery­day-nu­tri­tion prod­ucts, which in­clude nu­tri­ents like grains, fruits, veg­eta­bles or pro­tein. That cat­e­gory also en­com­passes wa­ter and unsweet­ened tea, prod­ucts that fuel re­sults.

The com­pany has also fo­cused on a broader “guilt free” line-up that in­cludes any drinks with fewer than 70 calo­ries – plus food with lower lev­els of sodium and sat­u­rated fat.

Pep­siCo and bev­er­age ri­vals Coca-Cola and Dr Pep­per Snap­ple Group are work­ing to ex­pand their port­fo­lios be­yond the sug­ary drinks they’re as­so­ci­ated with.

The Amer­i­can Bev­er­age As­so­ci­a­tion, which rep­re­sents the three com­pa­nies, an­nounced a pledge in 2014 to lessen per-capita con­sump­tion from drinks by 20 per­cent by 2025. So far, progress has been slow.

Pep­siCo has faced par­tic­u­lar trou­ble try­ing to rein­vig­o­rate its flag­ship diet soft-drink brand. It re­moved as­par­tame from Diet Pepsi in Au­gust 2015 af­ter con­sumers com­plained about the in­gre­di­ent. But sales sub­se­quently dropped, and the com­pany re-re­leased an as­par­tame-sweet­ened ver­sion less than a year later.

The brand cur­rently has three diet of­fer­ings: Diet Pepsi, Diet Pepsi Clas­sic Sweet­ener Blend and Pepsi Zero Sugar.

Pep­siCo and its peers are also con­fronting chal­lenges at the lo­cal level. Philadel­phia; the San Fran­cisco Bay area; Boul­der, Colorado; and the county en­com­pass­ing Chicago have each passed soft-drink taxes. – Bloomberg

Pep­siCo has faced par­tic­u­lar trou­ble try­ing to rein­vig­o­rate its flag­ship diet soft-drink brand.

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