Frito-Lay props up PepsiCo’s profits as soda goes flat

11-Jul-2018 - Last updated on 11-Jul-2018 at 10:12 GMT

PepsiCo's profits were bolstered by its sales of its salty snacks, despite headwinds from its beverage division.

Pepsi posted a second-quarter profit that topped analysts’ estimates, helped by strong sales of Frito-Lay and other salty snacks, which offset pressures as health conscious consumers shift away from colas.

While consumers are shunning sodas, chips remain popular, evident in the decline of PepsiCo’s North American beverage unit’s revenue and the growth of its Frito-Lay snacks business – which includes brands like Doritos, Ruffles and Tostitos.

According to CEO Indra Nooyi, fixing the struggling beverage unit is a top priority, especially as rival Coca-Cola has been spending heavily on advertising.

“We’re maniacally focused on getting this business back on track,” she told analysts on a conference call.

On track

However, she said she was pleased with results for the second quarter and the company remains on track to achieve the financial targets set out at the beginning of the year.

“The majority of our businesses performed very well, particularly our international divisions propelled by continued growth in developing and emerging markets,” she said.

PepsiCo’s Frito-Lays snack division saw operating profit and revenue grow 5% and 4%, respectively, bouyed by "great marketplace execution, innovation and creative brand marketing," added Nooyi.

"For example, we launched a 20-count Family Fun mix that includes an array of products from Lay’s to Cheetos to Ruffles with an expanded mix of flavors and this clearly help drive 10% net revenue growth in our overall variety pack business.

"We launched Ruffles Mozzarella 'n Marinara, our latest bar food inspired flavor [that] contributed to Ruffles 10% net revenue growth in the quarter. And Doritos Blaze launched earlier this year with the most talked about Super Bowl ad continues to perform well above our initial expectations and contributed to 6% net revenue growth in trademark Doritos in Q2.

"So overall, we are feeling very good about Frito-Lay North America’s performance and momentum," she said.

Conversely, revenue from PepsiCo's North American beverage unit dropped 0.9% to $5.19m, dragged down by higher costs for raw materials and transportation, although the overall beverage division saw net revenue climb 2.4% to $16.09bn.

Still, the Purchase, New York-based company’s profits slipped 14% to $1.82bn from $2.12bn a year earlier.

Beating analyst expectations

“Core” earnings were $1.61 a share, beating the $1.52 forecast by Wall Street analysts.

Net revenue rose 2.4% to $16.09bn, also outpacing estimates of $16.04bn. Organic revenue rose 2.6%.

International markets continued to be strong, with the company reporting a 7% revenue growth in Europe Sub-Saharan Africa and a 6% growth in Asia, Middle East & North Africa.

In May, PepsiCo acquired baked fruit and vegetable snack maker Bare Foods as part of its efforts to keep its business on trend with today’s snackers.

Looking ahead, it backed its previous financial forecast of 2.3% growth for the year.

Through the telescope

Nooyi conceded that there is much work to do in certain areas, but said she is incredibly proud of the progresses PepsiCo has made.

"Our aspiration of being a good company, good ethically and good commercially continues to come to fruition.

"Looking ahead, we will continue viewing our work through both the microscope and a telescope, focusing on the most granular details, grams of saturated fats, parts per billion of greenhouse gas, the number of women in management roles as well as the larger ambition of building a business that acts in accordance with our values," she said.