PepsiCo touts items seen as 'craft' as profit tops forecasts

AP News
|
Posted: Jul 07, 2016 10:57 AM
PepsiCo touts items seen as 'craft' as profit tops forecasts

NEW YORK (AP) — PepsiCo Inc., the packaged food giant that makes Mountain Dew soda and Frito-Lay chips, posted a quarterly profit Thursday that topped Wall Street expectations and touted new products that it said respond to growing interest in "craft" and "premium" options.

In a conference call with analysts, CEO Indra Nooyi noted the introduction of 1893, a craft cola named for the year Pepsi was invented, as well as Mountain Dew Black Label, which is marketed as being made with "real sugar" and "herbal bitters."

Nooyi said the company's decision to bring back Diet Pepsi made with aspartame in the U.S. less than a year after changing the sweetener also reflected PepsiCo's ability to adapt to a "fragmenting" marketplace.

"We have to learn how to handle complexity, not walk away from it," she said.

PepsiCo had swapped out the aspartame in Diet Pepsi last summer, citing consumer concerns over the artificial sweetener. But sales of the soda plunged, and the company said last month it would bring back the old formula — while selling the new one as well.

That led some analysts to question whether PepsiCo's beverage portfolio was getting too complicated. But Nooyi said the company needs to adjust to a market that is becoming more "niche," and noted that sales volume for its craft sodas are still low.

Nooyi, who told analysts that she sees herself running the company for several more years, also said the broader soda market in the U.S. is in decline, and PepsiCo is focusing on areas with bigger growth potential.

The company said it is now getting 9 percent of its revenue from new products.

Ali Dibadj, a Bernstein analyst, said PepsiCo has done a relatively good job of reacting to the segmentation in the packaged food industry, but that major companies might find it difficult to keep pace without making small acquisitions.

"It used to be that (companies) could just put advertising on TV and constrain the consumer's vision for purchasing decisions," he said.

As they seek to update their offerings, major companies including PepsiCo and Coca-Cola have also been slashing costs as they face weaker growth in saturated markets such as the U.S. and economic volatility overseas. Coca-Cola Co. reports its quarterly results later this month.

For the quarter ended June 11, PepsiCo Inc. said revenue for its Frito-Lay North America unit rose on stronger sales volume and pricing. The North American beverage unit, which includes Diet Pepsi and other drinks, also saw revenue tick up, as pricing offset a dip in volume.

For the quarter, the company earned $2.01 billion, or $1.38 per share, as it continued cutting costs. A year earlier the Purchase, New York-based company earned $1.98 billion, or $1.33 per share.

Earnings adjusted for non-recurring gains came to $1.35 per share, topping the $1.28 per share analysts polled by Zacks Investment expected.

Total revenue declined to $15.4 billion, hurt by a stronger dollar and the deconsolidation of PepsiCo's Venezuelan operations. When stripping out the impact of unfavorable currency exchange rates, and structural changes, the company said organic revenue rose 3 percent.

The company now anticipates full-year earnings of $4.71 per share, up from its previous guidance for $4.66 per share.

Shares gained more than 2 percent in early trading Thursday to $108.09.

___

Elements of this story were generated by Automated Insights (http://automatedinsights.com/ap) using data from Zacks Investment Research. Access a Zacks stock report on PEP at http://www.zacks.com/ap/PEP

_____

Keywords: PepsiCo, Earnings Report, Priority Earnings