PepsiCo leans more heavily on snacks

Snack growth helped offset continued declines at the rm’s drinks business


LOS ANGELESPepsiCo Inc’s snacks are having to pick up more of the slack for its ailing beverages.

The company posted sales and earnings that topped analysts’ estimates last quarter, helped by an uptick in volume at its Frito Lay business in North America. The snack growth helped offset continued declines at the Purchase, New York-based company’s drinks business. Still, a disappointing forecast suggests that PepsiCo has more struggles ahead.

The story is familiar: As sugarwary consumers turn away from sweet beverages, the company has relied more on food to bolster results. The maker of Mountain Dew and Cheetos is also benefitting from cost cuts, with CEO Indra Nooyi pursuing at least US$1 billion (RM3.94 billion) in annual savings.

“We delivered these results in the middle of a dynamic retail environment and rapidly shifting consumer landscape,” Nooyi said in a statement.

PepsiCo’s success with snacks is a sign that Frito Lay is innovating — examples include Organic Doritos and yogurt-based crackers — while simultaneously strengthening its core brands. But it hasn’t been able to pull off the same trick on the beverage side. North America beverage sales volumes were down 2% in the fourth quarter.

Core earnings amounted to US$1.31 a share in the period. Analysts estimated US$1.30, on average. Revenue was US$19.5 billion, compared to analysts’ prediction of US$19.4 billion.

Tepid Outlook

But PepsiCo’s forecast for this year was less impressive. The company sees earnings of US$5.70 a share, eight cents short of the average Wall Street estimate.

The stock gained less than 1% to US$12.50 in early trading.

It had lost 6.7% this year through Monday’s close.

The company also announced that it will pay bonuses of up to US$1,000 for some employees following the US tax overhaul, joining companies such as Home Depot Inc and Walt Disney Co in doling out perks.

PepsiCo and beverage rival Coca-Cola are both aiming to solve the declining popularity of their products with new innovations. Consumption of carbonated soft drinks fell to a 31-year low in the US in 2016, according to Beverage-Digest, a trade publication.

PepsiCo has set a limit of 100 calories per 12oz serving for two-thirds of its beverages, a goal it seeks to meet by 2025. The company is also pledging to reduce sodium and saturated fat in its snacks.

Its new sparkling water, Bubly, targets consumers who want better-for-you products — a group that’s driven the growth of National Beverage Corp’s LaCroix. But LaCroix’s success has caused competition to heat up in the segment: Nestlé SA, which owns Perrier and Poland Spring, is also boosting its bubbly offerings through its regional water brands.


Bubly will come in eight flavours and hit stores at the end of February. PepsiCo will advertise the product with two television ads on March 4 during the Academy Awards, one of the most-watched television events of the year. The Purchase, New York-based beverage giant said the Bubly launch will be one of its biggest ever.

LaCroix, which is produced by National Beverage, doesn’t use traditional mass-media advertising. It built its consumer base through aggressive retail marketing and social media, said Duane Stanford, executive editor of Beverage-Digest, the trade journal that first reported on PepsiCo’s plans. The sparking-water category is growing by double digits annually, with LaCroix boosting volume by 63% in 2016, Stanford said.

“Bubly is PepsiCo’s most direct and significant attempt yet to challenge LaCroix,” Stanford said.

PepsiCo launched a new still bottled-water brand, Lifewtr, last year. The maker of Mountain Dew and Gatorade aims for two-thirds of its global beve-rage portfolio to have 100 calories or fewer from added sugars per 12oz serving by 2025.

Bubly will be packaged in brightly coloured cans with smiles on the label that vary by flavour. One can has a mustache, for example, while another shows a tongue sticking out. The cans also have different greetings on their tabs, such as “yo” and “hey u”. — Bloomberg