The Economy

PepsiCo Beats Earnings Estimates Despite Competition, Cost Increases

The company said it would increase marketing behind a few key beverage brands.
William SprouseJuly 10, 2018
PepsiCo Beats Earnings Estimates Despite Competition, Cost Increases

PepsiCo reported first-quarter earnings of $1.61 per share on Tuesday, beating analyst estimates by 9 cents on the strength of sales of Cheetos and other salty snacks. The company reported net income of $1.82 billion, down from $2.12 billion a year ago.

Chief Executive Indra Nooyi said Pepsi’s North American beverage business has been struggling to respond to increased competition and changing consumer tastes. She said competitor Coca-Cola has increased its spending on advertising.

4 Powerful Communication Strategies for Your Next Board Meeting

4 Powerful Communication Strategies for Your Next Board Meeting

This whitepaper outlines four powerful strategies to amplify board meeting conversations during a time of economic volatility. 

PepsiCo said it would “responsibly” increase the marketing budget behind the Pepsi brand going into the second quarter and improve brand communication.

Pepsi reported total revenue of $16.09 billion, up 2.4%. Its Frito-Lay snack business grew 4%. Organic revenue growth in Europe and Sub-Saharan Africa hit 7% and growth in Asia, the Middle East and North Africa reached 6%.

The company said it excluded changes in the value of derivatives used to offset its commodities costs and a one-time tax expense of $777 million resulting from the new tax laws, among other things.

It also said commodity and transportation costs have been an issue across the industry. However, thus far, the effects of tariffs on aluminum have been immaterial.

Chief Financial Officer Hugh Johnston told CNBC the company would work to support three of its largest beverage brands — Gatorade, Pepsi, and Mountain Dew.

Initiatives include a Pepsi Generation advertising campaign, the re-release of Baja Blast (tropical lime flavored Mountain Dew), and the launch of calorie-free Gatorade Zero.

“We are disappointed,” Bonnie Herzog at Wells Fargo wrote in a research note. Herzog said despite improvement in Pepsi’s North American beverage sales, the division still remains “challenged.”

“We are pleased with our results for the second quarter and we remain on track to achieve the financial targets we set out at the beginning of the year,” Nooyi stated.

In May, PepsiCo announced a deal to buy the baked fruit and vegetable snack maker Bare Foods in an effort to expand its offering of healthy snacks.

“We tend to build businesses like them out and make them into platforms,” Johnston said.

Photo: Getty Images