PepsiCo’s Health Kick Pays Off, With Hummus Fueling U.S. Growth

  • Company’s international revenue has been hurt by strong dollar
  • Frito-Lay, North America Beverages also helped by lower costs

PepsiCo Inc.’s push into healthier fare is invigorating sales.

Products such as Sabra hummus and guacamole, Naked cold-press juices and Lipton Pure Leaf tea bolstered results last quarter, Chief Financial Officer Hugh Johnston said. That helped the company beat profit estimates last quarter and raise its forecast for the year.

The health kick is part of a makeover for a company that made its fortune from sugary sodas and salty chips. PepsiCo says shoppers are looking for new options -- and don’t mind shelling out more to get them.

“When you launch new and innovative products -- more of which are healthier than anything else -- consumers are willing to pay a premium,” Johnston said in an interview. “That’s what’s enabling us to drive the growth.”

Excluding some items, earnings were $1.40 a share in the third quarter, which ended Sept. 3, the company said Thursday. Analysts had estimated $1.32, on average. PepsiCo now expects profit of $4.78 a share this year, compared with a previous forecast for $4.71.

The shares rose as much as 2.2 percent to $109.71 in New York Thursday. Purchase, New York-based PepsiCo had been up 7.5 percent this year through Wednesday’s close.

Sales Beat

While revenue fell 1.9 percent last quarter, the company’s sales of $16 billion still topped the $15.8 billion estimated by analysts. And excluding currency effects, revenue would have grown 4.2 percent.

The Frito-Lay division led the way, with revenue climbing 3.4 percent to $3.68 billion. Sales in the North America Beverages unit, PepsiCo’s largest business, rose 2.9 percent to $5.52 billion, helped by Mountain Dew’s Kickstart energy drink. Revenue fell in all of PepsiCo’s other units, except for the Asia, Middle East and North Africa division, where it gained less than 1 percent.

Frito-Lay and North America Beverages also turned in the strongest profit performances of the company’s divisions. Both units were helped by lower raw-material costs and increases in productivity spurred by Chief Executive Officer Indra Nooyi’s cost-cutting push. Operating profit in the snacks division rose 5.8 percent to $1.15 billion, while earnings in the drinks business increased 5.1 percent to $904 million.

Growth Investments

Johnston said the company plans to invest the savings from its improved productivity, as well as the benefit it’s reaping from having an extra week in the current fiscal year, into measures to maintain sales increases.

“We want invest to continue the growth into next year and beyond,” he said. “So it’s all going to be around growth-driving types of initiatives, whether it’s marketing or research and development of products.”

(A previous version of this story was corrected to fix analysts’ average revenue estimate.)

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