PepsiCo’s organic volume stagnates, but earnings rise

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.