Financial results

C-stores drive PepsiCo's Q3 snack profits

By Hal Conick

- Last updated on GMT

PepsiCo execs say packaging automation investments will help Frito-Lay bolster future profits
PepsiCo execs say packaging automation investments will help Frito-Lay bolster future profits

Related tags Frito-lay north america Revenue Frito-lay

PepsiCo's Frito-Lay business saw an increase in revenue this quarter supported by volume growth in convenience stores.

In the third quarter of 2015, Frito-Lay North America posted net revenues of $3.6bn, a 1% increase from the same quarter last year.

Convenience stores were particularly strong for Frito-Lay’s products, according to company CFO Hugh Johnston. These shops make up about 20% of Frito-Lay’s business, he said, and saw a 4.5% volume growth in Q3. This was a big reason for the stronger-than-expected quarter for volume at Frito-Lay, said the firm.

Another of the company’s bakery and snack businesses, Quaker Foods North America, posted $583m net revenues for the quarter, a 0.5% drop from Q3 of 2014.

Overall, PepsiCo reported Q3 $16.3bn total net revenue, down 5% from 2014’s Q3. The group's total operating profit was down 50% from the same quarter last year, to $1.4bn compare with $2.8bn. Company officials say this was due to an unforeseen $1.4bn charge in Venezuela, poor foreign exchange translation, restructuring charges and other troubles.

Better technology, improved production

Indra Nooyi, chairman and CEO of PepsiCo, called Frito-Lay’s Q3 “solid,”​ as net organic revenue grew by 2%, but hopes the investments in technology and automation will allow the brand to grow even larger in the next year.

“We have installed packaging automation across approximately a third of our snacks plant worldwide enabling us to reduce packaging label costs in these facilities by at least 50%,” s​he told investors during the quarterly call. “In Frito-Lay North America, for example, approximately 65% of all production utilizes fully automated packaging.”

Nooyi also noted that the company expects a 40% production improvement in Mexico.

Efficiency improvements

Nooyi said Frito-Lay has benefited from improved focus on trade spending and revenue management, something she believes can and will improve the effectiveness of the brand and profitability of retailers.

While she acknowledged that it will likely take a few years before the best success is seen from this program, she believes the benefits will quickly start adding up for Frito-Lay.

“It’s a journey,”​ she said. “We are investing more and more in tools, training, capabilities and we are making sure everybody gets trained in these tools, developing market tools, emerging market tools, developed market tools, what we do with modern trade, what do we do with traditional trade, it is all about the training.”

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