Full-year results

PepsiCo profits benefit from ‘guilt-free’ snacks

By Gill Hyslop contact

- Last updated on GMT

PepsiCo's "guilt-free" products now account for 45% of the company's revenue.
PepsiCo's "guilt-free" products now account for 45% of the company's revenue.
PepsiCo CEO Indra Nooyi says 45% of the company's revenue now comes from “guilt-free" products as the company posts 2016 value sales gains.

The maker of Lay’s potato chips and Quaker Oats considers the company’s “guilt-free” category to comprise products that contain “positive” ingredients such as grains, fruits and vegetables, and proteins.

This includes items like the Quaker Oats breakfast cookie that contains 180 calories, 6 g fat and 14 g sugar; and beverages with less than 70 calories per 12 ounce serving.

Healthy beat

Nooyi said the company has increased its R&D investment by 45%, with a spend of approximately $3.5bn, since 2011 as it focuses on sugar, fat, calorie and sodium reduced NPD.

The company’s plans to roll out Quaker breakfast cookies to more than a dozen countries over the next two years; and build on the success of Baked Lays by broadening its line-up of baked snacks.

It will also expand its Sabra fresh dips and spreads range to include guacamole and salsa.

According to Nooyi, the Sabra brand “brings in roughly $800m in retail sales annually”.

“Net revenue from new products, which we define as those launched in the past three years, has averaged more than $5bn since 2013,”​ she said.

Profits better-than-expected

In the earnings call, the global drink and snack maker posted revenue of $19.52bn for the fourth quarter ended December 31, 2015, up 5% for the same period a year earlier. Net revenue for the full-year declined 0.4%.

It also announced a net income of $1.4bn, or 97 cents per share, for the fourth quarter ended December 31 2016. This is down 18% from $1.72bn, or $1.17 per share, a year earlier.

Net revenue in the North America beverages unit and Frito-Lay North America division, PepsiCo’s two largest businesses, rose 8% and 10% respectively in Q4 2016.

Nooyi reported: “Frito Lay North America and North America beverages each had strong, well- balanced performance and volume gain”​ … and … “despite macro volatility, our international divisions delivered very high, solid organic revenue growth, with particularly strong growth in Mexico, Egypt and China.”

Going beyond

Nooyi said PepsiCo “has met or exceeded every financial goal it set for 2016.”

She noted the company’s organic revenue grew by 3.7%, aligned with it goal of approximately 4%.

It also reached target of expanding core operating margins, which were up 80 basis points compared to 2015.

Our core constant currency EPS grew 9% versus our goal of 6% (keeping in mind the impact of deconsolidating of Venezuela which was a 2.5-point drag on earnings) … excluding Venezuela, our core constant currency EPS grew 12%,”​ she said.

Outlook for 2017

CFO Hugh Johnston said PepsiCo expects organic revenue to grow at least 3% in 2017, despite anticipated weakness in its international markets, particularly in developing regions such as Asia, Middle East and North Africa.

This is slower than the 3.6% it saw in 2016.

“I think our 3% revenue guidance reflects just a cautious outlook toward the macros globally, as well as a reflection of what is a more volatile world,”​ he said on a call with analysts.

He also said the company forecast 2017 adjusted earnings of $5.09 per share.

What exactly is considered “healthy”?

The use of the word “healthy” on food product labels has given rise to litigation in recent years, and the Food and Drug Administration is revamping its regulations in light of this.

The FDA will hold a public meeting on March 9 in Rockville, Maryland, to discuss the use of the term and is inviting interested parties to participate.

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