Dive Brief:
- PepsiCo raised its forecast for core earnings to $4.71 per share, up from the previous $4.66 per share, after reporting an uptick in second-quarter profits Thursday that beat analysts' expectations.
- The company reported a profit of $2.01 billion, or $1.38 a share, an increase over $1.98 billion, or $1.33 per share, in the same quarter last year. Analysts had anticipated profit of $1.30 per share.
- Revenue fell 3.3% to $15.4 billion, but that total also beat analysts' predictions of $15.37 billion. Excluding currency headwinds and deconsolidation of PepsiCo's Venezuelan business, organic revenue grew 3.3%.
Dive Insight:
While PepsiCo has struggled recently in international markets, the company's North American business units, including beverages, Frito-Lay, and Quaker Foods, have buoyed the company with revenue growth that offset losses overseas.
Sales for the Frito-Lay North America snacks business grew 3.2% to $3.56 billion for the quarter, thanks in part to increased demand for the Simply brand, including organic varieties of Tostitos chips. The segment's performance was on par with its 3% sales growth last quarter.
Quaker posted revenue growth in the second quarter after reporting a 3% decline in net revenue last quarter. By that point, the Quaker segment's total net revenue had fallen about 4% since 2011. On the first quarter's earnings call, PepsiCo CEO Indra Nooyi hinted at a turnaround for the unit, which is positioned to capitalize on consumers' increased demand for better-for-you breakfast and snack options.
PepsiCo's North America Beverages unit did report a decline in volumes, but price increases balanced out total revenue for the segment, which increased 0.6% to $5.15 billion. PepsiCo attributed a portion of that growth to its Propel enhanced water brand and Naked Cold Pressed juices.
The company announced last week that after steep sales declines and consumer blowback, it would bring back the aspartame-sweetened version of Diet Pepsi. Called Diet Pepsi Classic Sweetener Blend, it will appear in stores in light blue packaging alongside the new sucralose-sweetened version, which will remain in the traditional Diet Pepsi packaging.
All eyes are on PepsiCo for when it might make its next M&A move. Nooyi confirmed at an analyst conference in February that the company is open to acquisitions but hasn't found the right fit yet. A failed attempt to purchase a majority stake in Chobani earlier this year could have provided some much-needed lift to the Quaker Foods North America segment.
The question is whether PepsiCo will concentrate efforts on smaller investments, acquisitions, and distribution deals, like competitors Coca-Cola and Dr Pepper Snapple, or on larger examples of industry consolidation. Between the Mondelez-Hershey takeover attempt and the latest deal between Danone and WhiteWave, major manufacturers have proven they are not shying away from larger deals—even though the launches of new venture capital units and smaller investments and takeovers have received much of the attention lately.