North American sales help PepsiCo beat expectations

 

PepsiCo relied on home comforts as it beat market expectations for second-quarter earnings and raised its guidance for the year, joining the ranks of US multinationals looking inward amid slowing growth in emerging markets.

The strong dollar continued to hurt revenues at the maker of Doritos, Mountain Dew and Naked Juice, falling 3 per cent in the three months to the end of June to $15.4bn but earnings rose 4 per cent to $1.38 a share.

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Pepsi said on Thursday its decision last year to stop consolidating its Venezuelan earnings because of the volatile currency cost 2.5 percentage points of revenue growth.

However, cost cuts and a more efficient supply chain in its snacks business has helped counter the downward pressure as its North American business grows, particularly on the snacks side. Frito-Lay sales and the Quaker branded business both saw sales rise 3 per cent.

PepsiCo expects full-year growth in earnings per share, excluding the negative impact from the dollar and Venezuela’s deconsolidation, of 9 per cent instead of an earlier 8 per cent forecast.

After years of strong growth in emerging markets many US companies are finding that their home market is providing a solid basis for demand.

These groups have been hit by slowing growth overseas and lower profits when they are translated back into dollars.

They are stepping up efficiency to be able to spend on innovation and marketing as the global consumer becomes increasingly picky and vocal on social media, creating a fragmented market of niche foods and beverages.

This has played out in Diet Pepsi. Amid concerns about the sweetener aspartame, the company decided to reformulate the drink to use another sweetener. While that appeased some consumers, fans of the drink could taste the difference and sales dropped sharply. The company recently reintroduced a version of Diet Pepsi using the original recipe in an attempt to keep both sets of customers.

“We continue to see great strength in our North American businesses”, Pepsi’s chief financial officer Hugh Johnston said. “Internationally, we plan conservatively, assuming things are not going to go well [in terms of the] economic environment”.

Mr Johnston said that he did not expect Britain’s vote to leave the EU to have a huge impact on Pepsi’s operations because the company sourced much of its ingredients in the UK, leaving limited trade with the rest of the EU. He said that the biggest impact would be if there was a slowdown in economic growth or a fall in disposable income.

Pepsi’s earnings come amid a flurry of M&A activity in the sector, with Mondelez International making a bid for chocolate rival Hershey and Danone agreeing to buy WhiteWave for $12.5bn.

Mr Johnston said that Pepsi’s focus would remain on small deals if the company were to make any.
On the investor call, Indra Nooyi, chairman and chief executive for almost a decade, was asked about her plans given questions about her possible political ambitions. “Over the next several years I see myself running PepsiCo”, she said.

Fuente: FT.com.


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