PepsiCo earnings beat expectations, boosted by North American beverage unit
- On Indra Nooyi’s last day as CEO, PepsiCo reported third-quarter earnings that exceeded Wall Street expectations thanks to a revival of the North American beverage segment of their portfolio, which posted organic growth of 2.5%, according to a company release. Last quarter, the business division's organic growth was down 1.5%.
- PepsiCo posted net income of $2.49 billion for Q3, an uptick of 16% from $2.14 billion a year earlier. The soda giant's revenue for the period rose 1.5% to $16.49 billion, beating analyst predictions of $16.36 billion.
- As a result of this strong performance, the company revised its 2018 guidance, raising its expectations for earnings per share to $5.65 — an 8% increase compared to 2017.
PepsiCo’s earnings this quarter come amid a sea of changes within the organization. In August, Indra Nooyi announced she would step down after 12 years of leading the food and beverage company through turbulent waters. Today, she handed over the reins to Ramon Laguarta, a 22-year company veteran of the company who will take over on Oct. 3.
The beverage giant's Q3 earnings results underscore Nooyi's efficacy as its leader. The 16% in leap in net income compared to the year-ago period was a victory for Nooyi, who has spent years fighting against pressures to sell or spin off the company's beverage business as its growth lagged behind its Frito-Lay snack division.
Nooyi, who believed that PepsiCo was a stronger company with its beverage business intact, said earlier this year that heavy advertising spending by competitors such as Coca-Cola was an obstacle for the manufacturer's stable of drink brands. Last quarter, she said the company would ramp up investment in its Pepsi soda brands in response, stating that the company would "responsibly" increase spending in the second half of 2018. Recently PepsiCo has put beefier marketing investments behind Gatorade, Pepsi and Mountain Dew, and with 2.5% organic growth, it looks like this move is paying off.
"We were pleased that [PepsiCo] exceeded muted sales growth and EPS expectations (although we est. that a better-than-expected tax rate benefitted EPS by ~$0.07) – and were particularly encouraged that NAB (North America Beverage) results again sequentially improved, with +1% vol growth (the first period of positive segment vol. growth since 4Q16)," Wells Fargo analyst Bonnie Herzog wrote in a note.
Still, PepsiCo has a long way to go. As the company fights to gain a foothold in the better-for-you market, as well as modernize its classic soda portfolio, Nooyi has leaned heavily on M&A to help drive the company in the right direction. Last month she further decreased the company’s dependence on sugary sodas when PepsiCo purchased sparkling water maker SodaStream for $3.2 billion. In May, PepsiCo also bolstered its snack portfolio by buying Bare Snacks.
PepsiCo is also making changed to established beverage brands as part of its mission to offer more healthful alternatives. The company’s release of sugar-free Gatorade Zero, for example — which is part of the Gatorade umbrella that comprises about 20% of PepsiCo's North American drink volume — reflects this goal.
Innovations like this, as well as acquisitions of better-for-you brands, are likely continue under Laguarta. If this earnings period is any indication, it seems like it could be a path to long-term growth for the company.
- PepsiCo Earnings Report