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PepsiCo reports snacks stable amid Q2 profit drop

By Kacey Culliney , 25-Jul-2012
Last updated on 19-Oct-2012 at 10:13 GMT2012-10-19T10:13:56Z

As PepsiCo reported a 21% drop in overall profits for Q2 earnings today, snacks are holding steady thanks to global NPD investments and strong growth in Mexico and India, according to the CEO.

The snacks and beverage giant recorded a 21% slump in overall operating profits for the second quarter (Q2), down to $1.49bn in the 12 weeks to 16 June. It also reported a 2% drop in overall revenues.

The dip related to negative foreign exchange translation and heavy structural changes, including its Mexico beverage refranchising, Chinese Tingyi bottling alliance and its International Dairy and Juice (IDJ) joint venture that it launched with dairy firm Almarai, PepsiCo said.

However, PepsiCo Americas Foods (PAF), that comprises Frito-Lay North America (FLNA), Quaker Foods North America (QFNA) and Latin America Foods (LAF), recorded a 4% revenue surge for Q2 with profits slightly up.

This steady growth was driven by positive effective net pricing and underpinned by innovations and increased media support, PepsiCo said.

Mexico and India core growth markets

In today’s conference call, Indra Nooyi, chairman and CEO of PepsiCo, highlighted how important emerging and developing markets had been to this growth across its foods segment.

While all emerging and developing markets have been driving growth, for snacks, Mexico and India have been core drivers, Nooyi said.

PepsiCo already holds the largest market share in India’s $1.4bn sweet and savoury snacks market but has committed to launching 50 new products to market. It has made clear its avenue of growth will be to tap into the snowballing health demands across the country. See HERE . It also said it will invest heavily in its Quaker business in India, with the aim to double business every year. See HERE .

PepsiCo outlined that Latin America Foods showed the strongest revenue growth among PepsiCo’s food arms, with an 8% surge underpinned by “particularly strong growth in Mexico”.

The snacks and beverage giant caters to the Mexican snacks market through two subsidiaries – Sabritas and Gamesa – that produce Doritos, Tostitos and Cheetos. Its Sabritas arm was recently caught up in a drug-gang problem as it was accused of allowing police to spy on Mexican druglords. See HERE .

Europe accounted for 40% of all snacks revenue.

Crisps stable, cereals sinking?

Frito-Lay North America (FLNA) saw reported net revenues surge by 3% spurred by “effective net pricing and disciplined channel revenue management strategies”.

A growth strategy was employed in early March dedicated to exploiting the premium and value end of the snacks market. See HERE .

“We could have employed different volume growth strategies for Frito-Lay…But we are comfortable with what has been achieved,” Nooyi said today.

While the push is on premium and value, the ‘middle’ segment must not be forgotten, she said.

“Our challenge is to find the right strategy to compete with value without impacting the middle brands,” she added.

Quaker Foods North America (QFNA) saw a dip of 7% in its core constant currency operating profits due to higher commodity cost inflation, partially offset by productivity initiatives, PepsiCo said.

PepsiCo said that results were in line with expectations and indicated business was on track to reach its forecast full-year earnings for 2012.

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