Pepsi Tops Estimates, Promises More North American Investments
PepsiCo reported better-than-expected quarterly revenue as double-digit growth in developing markets offset another quarter of weak results in its North American beverage unit.
Like rival Coca-Cola, the world's second-biggest beverage maker is introducing new drinks to claw back ground in a U.S. market where sugary soda makers have suffered from consumers shifting toward healthier beverages, but its efforts are only slowly bearing fruit.
Sales in PepsiCo's North America beverage unit, which accounts for nearly a third of total revenue and sells Lipton tea, Mountain Dew as well as Pepsi itself, fell by less than in previous quarters but were still down 1%.
Chief executive Indra Nooyi said on a post-earnings call PepsiCo was determined to reverse three quarters of decline and would step up spending on its marquee soda brand under a new "Pepsi Generations" campaign.
Nooyi said despite a moderate increase in media spending on trademark Pepsi over the past three years, the company's market share has fallen dramatically relative to its key competitor.
"We'll go toe-to-toe and increase our spending in colas, in particular, but we're going to remain very responsible on pricing," Nooyi said.
Earlier this week, Coke's beverage sales blew past estimates, as it introduced four new flavors of Diet Coke and saw demand for Coke Zero sugar increase.
PepsiCo's new marketing efforts could further pressure operating profits, which have already shown weakness in its North American Frito-Lay, Quaker Foods and Beverages businesses, due to higher input costs as well as bonuses paid to employees following President Donald Trump's Tax Cut and Jobs Act.
Shares of the Purchase, New York-based company were around 0.3% higher by midday, having risen as much as 1.4%.
Developing Markets Shine
In contrast to North America, first-quarter sales in Latin American markets rose 14%, while those in Europe and sub-Saharan Africa gained 15%.
Sales in Asia, the Middle East and North Africa were up 7%.
The company's Frito-Lay snacking business in North America did better than beverages, rising 3.4% in the quarter, although it missed expectations of 4% growth. The Quaker business - which includes the eponymous porridge oats - showed flat sales in North America due to cuts in pricing. "All North American units miss (but) LatAm (was) surprisingly strong," Evercore ISI analyst Robert Ottenstein said.
Excluding items, Pepsi earned 96 cents per share, beating analysts' average estimate by 3 cents, according to Thomson Reuters.
Total revenue rose 4.3% to $12.56 billion, topping analysts' estimate of $12.40 billion.
PepsiCo also stuck to its full-year 2018 guidance.