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PepsiCo margins fall despite profit gains

By Charlotte Eyre , 11-Feb-2008

Beverage and snack company PepsiCo last week posted a 10.3 per cent increase in operating profit for the tax year ending 30 December 2007, but higher overall costs led to a slight decrease in margins for the group.

Net sales for the year increased 12.3 per cent to $35.1bn, but a 14.4 per cent increase in costs put a strain on the company's overall results. Margins for the year were down 0.3 percentage points to 18.2 per cent, PepsiCo said. However, company chief executive officer Indra Nooyi remained optimistic, as all divisions experienced growth in operating profit over the period. Snack arm FritoLay experienced growth in operating profit of 13 per cent, driven by strong sales and an increase in consumer prices. Trademark brands such as Lay's and Doritos grew in single digits in terms of sales, while the highest revenues came from Chewy Granola bars and rice cakes, the company said. Sales from PepsiCo beverages North America division were also high, leading to a 16 per cent increase in operating profit. The company posted growth not only for its tea, juice and juice drink brands, but also for its most renowned trade marks Pepsi, 7-Up and Mountain Dew, the company said. "Our strong top- and bottom-line results in 2007 once again demonstrated the balance and strength of our global portfolio," said PepsiCo chief executive officer Indra Nooyi. "All of our segments posted solid results for the year." The other two divisions, PepsiCo International and Quaker Foods North America, did not fare quite so well, posting increases in operating profit of 0.7 per cent and 2.4 per cent respectively.


In terms of regions, Russia, the Middle East, Turkey and India were mentioned as strong for snack sales, while beverages proved popular in China, Brazil and Argentina. For the fourth quarter, net sales increased 16.8 per cent, but costs were also up 19.8 per cent. Across all divisions, operating profit increased by an 8.9 per cent, the company said. For 2008, PepsiCo expects three to five per cent growth, Nooyi said, and will begin reporting on six business segments - Frito Lay North America, Quaker Foods North America, Latin America Foods, PepsiCo Americas Beverages, UK and Europe, and the Middle East, Africa and Asia. "The new organisation is ready to take the best of PepsiCo across our divisions and geographies to generate profitable growth, expand our global footprint and make our commitment to sustainable growth - 'Performance with Purpose' - the driving force behind everything we do," Nooyi said. Although first established as a beverages company, PepsiCo is now the unchallenged snack leader, controlling a 23 per cent share of the market in Western Europe, followed by Proctor & Gamble with five per cent, and United Biscuits with four per cent.


Furthermore, the company now owns three of the most popular crisp brands in the area - Walkers, Lay's and Doritos, according to information from market analysts Euromonitor.

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