Pepsi Profit Up 13% in Quarter
Soft drink and snack food maker PepsiCo Inc. on Tuesday reported a 13% rise in second-quarter earnings, driven by strength in China and other developing markets as well as strong domestic sales of cereal and pasta in its Quaker Foods business.
The company, which also owns Frito-Lay snacks, said it would bolster investment in its North American beverage business and overseas to revive sluggish soda sales. The increased spending on new products comes as PepsiCo and archrival Coca-Cola Co. each grapple with declining soda sales as consumers around the world are increasingly drawn to coffee, tea and juice items.
“We do intend to step up investments in North American beverages and in our international business,” Chief Financial Officer Indra Nooyi said. Among other things, the company also said it would “invest aggressively” in new drinks such as Pepsi One, a diet soda, and Pepsi Lime.
PepsiCo, the world’s No. 2 soft drink maker, reported second-quarter profit of $1.19 billion, or 70 cents a share, for the 12 weeks ended June 11, up from $1.06 billion, or 61 cents, a year earlier. The company also forecast full-year earnings in line with previous guidance.
The results beat Wall Street’s consensus forecast of 67 cents a share, and PepsiCo’s shares rose 75 cents, or 1.4%, to close at $54.60.
“Earnings came in better than what the market expected. What’s encouraging is that they can still generate strong top-line growth in both food and beverage in North America, two key businesses,” said Bonnie Herzog, managing director and food analyst at Smith Barney. “Their international business continues to be strong. That’s where you’re seeing a lot of growth and margin expansion.”
Revenue rose 9% to $7.7 billion, topping analysts’ average forecast of $7.56 billion. Volume rose 2% at Frito Lay North America, whose brands include Lay’s, Cheetos, Tostitos and other salty snacks, and climbed 12% at Quaker Foods North America, led by strong gains in Quaker oatmeal, Rice-A-Roni and Pasta Roni side dishes, and Aunt Jemima syrup and mixes.
In the standout international division, snack volume rose 3%, while drink volume jumped 10%. PepsiCo said it saw strong snack growth in developing markets such as India, China, Russia and Turkey, and drink volume growth was led by the Middle East, China and Argentina.
However, volume growth at PepsiCo Beverages North America declined by half a percent because of sluggish carbonated drink sales, reflecting Americans’ shift from drinking soda in favor of bottled water and other drinks seen as more healthful. Volume growth of noncarbonated drinks such as Aquafina, Propel fitness water and Gatorade mostly offset the decline in carbonated soda.
