PepsiCo smashes Wall Street estimates

PepsiCo2PepsiCo has outperformed market expectations with its second quarter result, offsetting continued weakness in beverages with its snack brands.

The result boosted PepsiCo’s standing with investors yesterday, sending its stock price up 4.7 per cent despite ongoing concern that the FMCG giant is struggling to deal with broader category disruption.

Nevertheless, delivering figures for the quarter on Tuesday in the US, PepsiCo chairman and chief executive Indra Nooyi affirmed the FMCG giant’s 2018 financial targets.

“The majority of our businesses performed very well, particularly our international divisions propelled by continued growth in developing and emerging markets,” she said.

Net income for the twelve weeks ending 16 June was US$1.83 billion, down 14 per cent on the prior corresponding period.

Net revenue increased by two per cent to US$16.09 billion. The Asia, Middle East and North African region posted a six per cent increase in organic net revenue, leading to a 61 per cent increase in operating profit.

Nooyi told analysts that the business would increase investment in its namesake brand in the second half, to combat mounting market pressures.

Pepsi has struggled to deal with changing consumer tastes away from sugary drinks and increasing competition from industry disruptors in recent years.

The crucial North American Beverages unit booked a 16 per cent decline in operating profit for the second quarter, reflecting a one per cent decline in revenue.

Snacks, once again, came to the rescue. The North American Frito-Lay business -including Doritos- posted a three per cent increase in operating profit on the back of a 3.5 per cent bump in organic revenue.

The North American Quaker Food business was less positive, with flat operating profit reflecting a five per cent revenue decline.

Higher commodity costs weighed on Quaker, while cost pressures in moving beverages around North America remain a headwind for Pepsi.

Planned cost reductions and other adjustments have been undertaken and are planned to mitigate this impact.

Analysts have expressed concern that underlying weakness in beverages exposes the FMCG giant to a slowdown in its snacks business, and that if salt follows the path sugar has, PepsiCo could be left out in the cold.

PepsiCo expects 2018 net revenue growth of at least 2.3 per cent.

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