Thursday, October 17, 2013

PepsiCo Posts Better-than-Expected Results, Thanks to Its Snack Business

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The food and beverage giant PepsiCo (PEP) came out with its earnings on October 16 and crushed analyst estimates by recording stronger than expected profit. Though the North American beverage unit results were weak, the Frito-Lay snack side managed to post solid sales which compensated for the beverage unit sales. Let's take a closer look at some of the essential numbers of the quarter earnings of the soft drink and snack company.

A Look at the Quarter

The total revenue of PepsiCo increased 1.5% to $16.9 billion, marginally below consensus estimates of $17 billion. The maker of Pepsi, Gatorade and Doritos posted net income of $1.9 billion, or $1.23 per share, and thrashed analyst estimates of $1.8 billion. Earnings growth was relatively flat compared to last year comparable period figure. The operating profit of PepsiCo went down 1% to $2.7 billion.

Growth in the beverage segment is slowing down. Even Coca-Cola (KO), PepsiCo's archrival, has been complaining that sales gain is a bit on the slow side for the carbonated drinks segment as consumers continue to shift to still beverages at a fast rate. The beverage giant also reported its quarterly earnings a day before PepsiCo. The company's soda volume remained flat in North America, but still the beverage giant experienced gain in market share. Both the companies are struggling in their domestic market as people are getting conscious of their health and avoiding carbonated drinks.

However, PepsiCo should be thankful to its snack segment which saw strong sales and helped offset the ill effect of its beverage unit. Americas beverage sales dropped 2% to $5.4 billion for the third quarter, while Asia, Middle East and Africa plunged 3% to $1.6 billion. However, Europe showed positive results with 3% growth to $3.8 billion, thanks to the higher prices of its offerings. In contrast, the food business is! going well. The company's food sales increased 5% to $6.1 billion.

As the company is in both snack and drinks, the loss of one is being balanced by the gain in the other business. The company executives said that PepsiCo intends to combine its drink and snack business. The management aims to maximize shareholders' interest at large, rather than focusing on the needs of a segment of the stakeholders. The chief executive of the company Indra Nooyi said that she was "pleased" with PepsiCo's quarterly performance given the volatile macroeconomic condition.

The Bottom Line

Slow emerging market growth and restricted demand for carbonated drinks could be reasons for concern for the beverage company. To overcome such challenges, PepsiCo is focusing on advertisement and concentrating on its 12 best brands to help it boost organic growth. The company's strategy is to strengthen its competitive position by investing on innovation and market its offerings in the most profitable manner.

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