Dive Brief:
- PepsiCo's first quarter profit of $931 million, or $0.89 per share, announced Monday morning, blew past analysts' estimates of $0.81 per share. However, profit was still down from $1.22 billion last year.
- Quarterly revenue fell 2.9% to $11.86 billion. Currency headwinds were a key factor in that decline, accounting for 4.5 percentage points, while organic revenue increased 3.5%.
- PepsiCo said it delivered on earnings due in part to revenue management, productivity initiatives, and other company-wide cost-cutting measures, which expanded the company's core gross margin by 1.3 percentage points.
Dive Insight:
Organic revenue growth was driven primarily by Frito-Lay North America (3% increase) and North America Beverages (1.5% increase). These units made up for disappointing performances by PepsiCo's international businesses and Quaker division, the latter of which saw a 3% decline in net revenue for the quarter.
The Quaker segment's total net revenue has fallen about 4% since 2011, including a nearly 30% drop in operating profits in that period. In the company's last earnings call, CEO Indra Nooyi hinted at a turnaround for the segment, which is positioned to benefit from consumers' pursuit of better-for-you breakfast and snack options.
PepsiCo has also ramped up its marketing efforts, up 40 basis points to 6.3% of sales last year. In the fourth quarter, PepsiCo doubled down on that marketing spend for a quarterly year-over-year increase of 80 basis points.
These "better-for-you" and marketing-driven moves are critical at a time when carbonated soft drinks are in an 11-year downturn, including a 1.5% volume decline in the U.S. last year.
Acquisitions remain up in the air for PepsiCo, which is currently ripe for expansion in snacks, beverages, and Quaker alike. Chobani turned down PepsiCo's takeover offer last year, as Chobani sought only to sell a minority stake. But the discussion demonstrates PepsiCo's willingness to seek M&A opportunities if it finds the right target.
Last month, PepsiCo announced executive changes, promoting Al Carey, CEO of the North America Beverages division, to a newly created position, CEO of North America. Carey will lead all three divisions of PepsiCo's North America business, including beverages, Frito-Lay, and Quaker. This move sparked speculation that the company could be grooming Carey to take Nooyi's position when the time comes, according to Fortune.