Health kick jolts PepsiCo earnings
More emphasis on nutrition helps food giant’s bottom line as sugary drink sales fizzle
PepsiCo Inc., the maker of Mountain Dew and Cheetos, is getting a boost from its resolution to shape up.
The food giant now generates 45 per cent of its revenue from socalled guilt-free products, which include lower-calorie drinks and snacks with grains, fruits and vegetables. With customers attempting to eat healthier — especially in North America — the company is seeing the shift show up on its bottom line.
PepsiCo posted earnings of $1.20 (U.S.) a share in the fourth quarter, excluding some items, topping the $1.16 estimated by analysts. Sales gained 5 per cent to $19.5 billion in the period, matching estimates.
Efforts by chief executive officer Indra Nooyi to release new and revamped products is helping the company cope with an industrywide slump in sugary beverages. Per-capita soda consumption in the U.S. fell to a three-decade low in 2015, according to Beverage Digest, a trade publication. That’s put more emphasis on products like Sabra hummus and Naked juices.
A category that the company calls “everyday nutrition,” which includes water, unsweetened tea and healthier snacks, now accounts for 25 per cent of sales. PepsiCo is focused on “lower sugar, lower salt, lower fat,” chief financial officer Hugh Johnston said in an interview, “while Pepsi-Cola is becoming a smaller part of the mix.”
Still, the company’s 2017 earnings forecast was light on estimates. PepsiCo predicted $5.09 a share, missing the $5.15 predicted by analysts.
Nooyi looks to take the health kick further in the future. In October, the company pledged to reduce its reliance on sugar, salt and saturated fat.
At least two-thirds of the compa- ny’s volume will have no more than 100 calories from added sugars per 12-ounce serving by 2025.
PepsiCo has taken other steps, including:
Agreeing in November to buy KeVita, a maker of fermented probiotic drinks;
Debuting an organic version of Gatorade in August; and
Announcing a partnership in October 2015 with BarFresh Food Group Inc., a smoothie maker.
PepsiCo and beverage rivals CocaCola Co. and Dr Pepper Snapple Group have all vowed to get consumers to consume less sugar. The American Beverage Association, a trade group that represents the three companies, announced a pledge in 2014 to lessen per capita calories from drinks by 20 per cent by 2025. But the work has gotten off to a slow start. Caloric intake from beverages only dropped 0.2 per cent in 2015.
PepsiCo also hasn’t figured out how to reinvigorate its flagship diet soda.
It removed aspartame from Diet Pepsi in August 2015 after the ingredient gained a bad reputation with consumers. But after sales sputtered, it re-released an aspartame-sweetened version less than a year later.
The company’s bottom line also has been helped by Nooyi’s cost-cutting push, which has cut about $1billion a year since 2012.
“That virtuous cycle of productivity leading to investment leading to growth,” Johnston said.
“That’s why PepsiCo has been performing so well.”