Frito-Lay unit sales power PepsiCo’s profit, revenue beat

Reuters News:  

PepsiCo Inc (PEP.O) topped quarterly profit and revenue estimates on Tuesday as the company’s strategy to offer more healthier beverages and focus on its snacks business paid off.

Sales at Frito-Lays snacks division continued to grow, rising for the second straight quarter, while its soda business in the second quarter posted its smallest sales drop in a year.

This comes months after Chief Executive Officer Indra Nooyi’s decided to go “toe-to-toe” with bigger rival Coca-Cola (KO.N) by spending more on marketing its trademark colas.

Pepsi’s beverages unit that makes carbonated soft drinks has been struggling to reverse a four-quarter decline in sales as consumer taste shifts to low-calorie and low-sugar alternatives.

To stem the slide, the company has been boosting its portfolio of healthier options to sodas by offering products such as Bubly, a flavored sparkling water and Gatorade Zero, a sugar-free sports drink.

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

“Our North America Beverages sector posted sequential net revenue and operating profit performance improvement.”

Sales in its North America beverage unit fell about 1 percent to $5.19 billion in the quarter, but narrowly beat market expectations.

“We’ve been encouraged by PEP’s early success with Bubly,” Wells Fargo analyst Bonnie Herzog wrote in a pre-earnings note, adding that Bubly now commands a 4.4 percent share in sparkling water despite only being on the market for a few months.

Shares of Pepsi rose 2 percent to $110 in premarket trading after it reaffirmed its 2018 profit forecast. The company’s stock has declined about 10 percent this year, steeper than bigger rival Coca Cola’s (KO.N) 3.2 percent drop.

Pepsi has also been trying to overcome its sluggish beverage sales by ramping up its snacks business through a mix of new flavors, healthier preparation methods and attractive packaging.

These efforts led to a 4.3 percent rise in sales at its Frito-Lay division that makes Cheetos and Doritos tortilla chips.

Net income attributable to the company fell about 14 percent to $1.82 billion, in the quarter ended June 16, mainly due to higher costs for transportation and raw materials.

Excluding items, Pepsi earned $1.61 per share, beating analysts’ average estimate of $1.52 per share, according to Thomson Reuters I/B/E/S.

Net revenue rose 2.4 percent to $16.09 billion, edging past expectations.