PepsiCo quarterly profit beats expectations on stronger snack sales, cost cuts, price hikes

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NEW YORK, N.Y. – PepsiCo reported a stronger-than-expected quarterly profit as the company sold more snacks around the world and hiked prices, including on its drinks.

The company, which also makes Frito-Lay, Gatorade, Mountain Dew and Tropicana, said global snack volume rose 2 per cent in the period. Global beverage volume was unchanged from a year ago, including in its closely watched North American drinks unit.

Coca-Cola also reported flat volume in the North America market earlier this week. Both companies have been offsetting ongoing declines in their flagship soda businesses by relying more heavily on other beverages, such as sports drinks, juices and bottled waters.

Even though beverage volume was flat in North America, PepsiCo managed to push up revenue by raising prices as well as introducing more expensive drinks such as Mountain Dew Kickstart, which is marketed as an energy drink of sorts for younger men.

In a phone interview, Chief Financial Officer Hugh Johnston noted that a can of Kickstart costs $1.99, versus $3.50 for a 12-pack of Mountain Dew. He said that stepped-up marketing has strengthened the company’s brands, which has allowed PepsiCo to raise prices. For the year, he said the company planned to raise prices between 2 per cent and 3 per cent in both snacks and drinks.

“As we make the brands stronger, consumers are willing to accept that,” he said.

Finding ways to charge customers more has been critical for Coca-Cola and PepsiCo, which are trying to make up for declines in soda volume. Both companies, for instance, have rolled out “mini-cans” of soda that they say fit with people’s desire to control portion sizes. But the smaller sizes are also more profitable for the companies.

“Taking down pricing is not going to drive up demand all that much,” PepsiCo CEO Indra Nooyi said in an earnings call.

Both companies have been slashing costs to boost profit and free up money for marketing.

At its Frito-Lay North America unit, revenue rose 4 per cent, reflecting a 3 per cent increase in volume and slightly higher prices.

In Europe, snack and beverage volumes each rose by 3 per cent. In the unit encompassing Asia, the Middle East and Africa, the company said revenue growth was driven by higher snack volume.

Johnston said that strength during the quarter demonstrates why the company’s snack and beverage units belong together, seemingly in reference to calls by activist investor Nelson Peltz, who wants the company to split its stronger snacks unit from its drinks unit.

PepsiCo has steadfastly rejected the strategy.

For the first quarter that ended March 22, the company earned $1.22 billion, or 79 cents per share. Not including one-time items, it earned 83 cents per share, above the 75 cents per share Wall Street expected.

A year ago, it earned $1.08 billion, or 69 cents per share.

Revenue edged up to a better-than expected $12.62 billion.

PepsiCo, based in Purchase, New York, stood by its outlook for the year. It expects adjusted earnings per share to grow by 7 per cent.

Its stock closed up 78 cents, or almost 1 per cent, at $85.55.

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Follow Candice Choi at www.twitter.com/candicechoi

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