business

Chips Boost PepsiCo’s Results While Soda Struggles Continue

Updated on
  • Maker of Mountain Dew seeing tastes shift away from colas
  • Health-conscious consumers haven’t yet given up on snacks
Photographer: Luke Sharrett/Bloomberg

Success in PepsiCo Inc.’s snack division is making up for a still-fizzling beverage unit.

The company posted sales and earnings that beat analysts’ estimates in the first quarter, buoyed by increased volumes of Frito-Lay chips as the drinks business continued to struggle.

PepsiCo, like rival Coca-Cola Co., has focused on introducing new, innovative drinks and products. But it was food brands that drove gains in the quarter. The company previously said it had shifted its spending too far in the direction of upstarts and away from its biggest names, so it has since refocused attention on its most recognizable labels. That strategy will bear fruit later in the year, according to Chief Executive Officer Indra Nooyi.

“The majority of our businesses performed very well,” she said in the statement. “Competitively we recognize the need to step up investments in core carbonated soft drinks, which we intend to responsibly do. We believe our plans will drive further improvement as the year progresses.”

Core earnings were 96 cents a share in the latest quarter, beating the 93 cents that analysts were expecting. Revenue was $12.6 billion, compared with a forecast $12.4 billion.

The results are a promising sign, although the North America beverage division is still beset as consumer tastes shift away from colas. Consumption of carbonated soft drinks fell to a 31-year low in the U.S. in 2016, according to Beverage-Digest, a trade publication.

Soda Slump

Americans have been consuming fewer carbonated soft drinks

Source: Beverage-Digest

Note: Data shows 8-ounce servings per person; 2017 data not yet available

PepsiCo has relied instead on growth in its snack business. Health-conscious consumers who have moved away from sugar-laden sodas haven’t made the same moves away from chips. PepsiCo has also introduced organic and better-for-you versions of some of its biggest snack brands. Growth in the Frito-Lay and Quaker divisions helped boost sales in the quarter.

The maker of Mountain Dew and Cheetos also benefited from cost cuts as Nooyi continues pursuing at least $1 billion in annual savings.

PepsiCo in The Lead

Sales growth rates are showing the biggest disparity with Coca-Cola Co. since 2011

Source: Bloomberg

Note: A positive number shows PepsiCo saw higher growth

Purchase, New York-based PepsiCo also noted the impact of a lower corporate tax rate due to the U.S. tax overhaul. The company faced reported levies of 18.3 percent in the first quarter, compared with 22.7 percent in the same period last year. Benefits from lower taxes were offset by previously announced bonuses to some U.S.-based employees.

Shares were little changed in premarket trading in New York. The stock dropped 15.7 percent this year through Wednesday’s close.

— With assistance by Vivian Li

(Updates with CEO comment in fourth paragraph, tax rate in ninth paragraph, shares in 10th paragraph.)
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