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PepsiCo sales boosted by pricier ‘guilt-free’ premium snacks

Gill Hyslop

By Gill Hyslop+

12-Jul-2017
Last updated on 13-Jul-2017 at 12:50 GMT2017-07-13T12:50:18Z

PepsiCo has increased its portfolio of everyday-nutrition premium snacks like Lay's Poppables, which has helped increase Q2 2017 sales. Pic: PepsiCo
PepsiCo has increased its portfolio of everyday-nutrition premium snacks like Lay's Poppables, which has helped increase Q2 2017 sales. Pic: PepsiCo

PepsiCo’s chairman and CEO Indra Nooyi says price hikes and a focus on premium products like Lay’s Poppables and Quaker Overnight Oats helped increase 2017 Q2 sales, despite flat volume growth

Nooyi reported Pepsico group organic revenue was up more than 3% globally, driven by snacks.

Net income for the quarter rose to $2.11bn from $2.01bn a year earlier, while operating profit was 1% higher at $2.99bn.

Sales in the Frito-Lay snacks division also rose 3.5% in North America, even though volume didn’t increase from a year ago.

Guilt-free snacking

Indra Nooyi

“We feel very good about the business, with innovation, pricing and execution, all on target.”

The company has expanded its “everyday-nutrition” product line-up, adding nutrients like grains, fruits, vegetables and protein; cutting levels of saturated fat, sugar and sodium; and adding unsweetened tea and smart drinks like LifeWTR to compete against Coca-Cola’s Smartwater.

It recently launched a “first-to-market” Overnight Oats Cup to capitalize on the growing consumer trend of preparing chilled oats using a variety of healthy ingredients.

“Our product transformation efforts to date have resulted in a portfolio where we now derive approximately 45% of our net revenue from products that we refer to as guilt-free,” added Nooyi.

Beating analysts’ estimates

Charging higher prices, cutting expenses and adding more premium products to the mix was a strategy that worked for Nooyi, contributing to second quarter earnings that topped Wall Street estimates and boosted the food giant’s annual forecast.

On Tuesday, the Doritos maker posted second-quarter earnings of $1.50 a share, exceeding analysts’ estimates of $1.40.

Guidance re-iterated (FY17):

  • Organic growth of at least +3%
  • FX headwinds of -2% for net sales
  • 53rd week impact of -1%
  • Cash flow from operations: $10bn
  • Free cash flow: $7bn
  • Net capital spend: $3bn
  • Dividend payments: $4.5bn
  • Share repurchases: $2bn

Revised guidance (FY17):

  • FX impact to core EPS -2% (prior: -3%)
  • Adjusted EPS now $5.13 for FY17 (prior: $5.09)

The New York-based company raised its 2017 earnings target to $5.13 a share from a previous forecast of $5.09.

Sales gained 2% to $15.7bn in Q2, beating the projection of $15.6bn.

“We feel very good about the business, with innovation, pricing and execution, all on target,” added Nooyi.

She said that Frito-Lay was the biggest Q2 contributor to the total US food and beverage retail of all the $5bn-plus manufacturers.

Feeling good about the future

Nooyi said the company expects to “remain very much on track to deliver our full year financial target of at least 3% organic revenue growth and 8% core constant currency EPS growth.

“We feel very good about where we stand.”

PepsiCo generated approximately $63bn in net revenue in 2016.

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