PepsiCo Q3 Earnings Beat Expectations on Beverage Sales

Food and beverage maker PepsiCo Inc. posted better-than-expected revenue results on Tuesday, reinforcing signs of rising consumer demand for its beverage products in North America.

Pepsi’s net income rose 16 percent to $2.49 billion or $1.75 per share for the fiscal third-quarter ended September 8, compared to last year’s $2.14 billion or $1.48 per share.

Excluding items, the company generated $1.59 per share, surpassing analysts’ forecast of $1.57 per share.

The latest earnings report mark the first since PepsiCo Chief Executive Indra announced plans to leave her position in August, topping her 12-year term as CEO. Nooyi will remain chairman until early next year, while PepsiCo President Ramon Laguarta will succeed her on October 3.

Shares of PepsiCo fell 0.9 percent to $109.69 on Tuesday.

PepsiCo Revenue Rises but Misses Estimates

Driven by investments in marketing and development of new products for Latin America, PepsiCo’s net revenue climbed 1.5 percent to $16.49 billion, beating analysts’ average estimates of $16.36 billion,

However, the US food group was unable to meet sales expectations for North America beverages and its Frito-Lay snack unit.

Revenue in its North America beverages division, which houses sports drink Gatorade, Mountain Dew, its namesake cola, and other drinks, gained 2 percent to $5.46 in the third quarter, but missed analysts’ expectations of $5.6 billion.

The return to growth in North America came as the company broadened its portfolio with more non-carbonated drinks and sparkling water, introducing products like Lifewtr and Bubly, while including healthier choices to its Gatorade brand.  

Sales of its Frito-Lay branded snacks also grew 2.6 percent in North America, but sluggish demand for salty snacks left it falling short of analysts’ estimates.

Experiencing slowing demand for sugary sodas and salty snacks in its home market, PepsiCo has over the years shifted its focus on emerging markets, where organic sales were up 10 percent in the quarter due to marketing and new product launches in Mexico, India, and China.  

Nooyi said they continued to see very strong operating performance from their international units, propelled by developing and emerging markets.

PepsiCo stated that it expects organic sales for the year, which excludes purchases and forex impact, to grow 3 percent, instead of previous forecast of 2.3 percent.

The company, however, sees a strong dollar to weigh down on its fiscal year profits by one percentage point. As a result, PepsiCo estimated to earn $5.65 per share in fiscal 2018, which is 8 percent higher than 2017.

PepsiCo intends to double its marketing spend for its Gatorade, Pepsi, and Mountain Dew brands and improve advertising behind its trademark sodas such as Pepsi, Diet Pepsi, and Pepsi Zero to help recuperate market share from rival Coca-Cola Co. Inc.

Meanwhile, the company continues to invest in the beverage industry. PepsiCo announced on August its plans to acquire at-home carbonated drink-maker SodaStream for $3.2 billion. The deal is expected to close by January, subject to SodaStream shareholder vote and regulatory approvals.

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