PepsiCo Inc reported better-than-expected quarterly revenue due to double-digit growth in developing markets that offset another quarter of weak results in its North American beverage unit.
Like rival Coca-Cola, the world’s second-biggest beverage maker is introducing new drinks to claw back ground in a U.S. market where sugary soda makers have suffered from consumers shifting toward healthier beverages, but its efforts are yet to bear fruit.
Sales in PepsiCo’s North America beverage unit, which accounts for nearly a third of total revenue and sells Lipton tea, Mountain Dew as well as Pepsi itself, fell 1 per cent.
Chief Executive Indra Nooyi said on a post-earnings call that PepsiCo was determined to reverse three quarters of decline in beverage sales in North America and would step up spending on its marquee soda brand under a new “Pepsi Generations” campaign.
“We’ll go toe-to-toe and increase our spending in colas, in particular, but we’re going to remain very responsible on pricing,” Nooyi said, addressing competitive threats.
Earlier this week, Coke’s beverage sales blew past estimates, as it introduced four new flavors of Diet Coke and saw demand for Coke Zero sugar increase.
PepsiCo’s new marketing efforts could further pressure operating profits, which have already shown weakness in its North American operations of Frito-Lay, Quaker Foods and Beverages, due to higher input costs as well as bonuses paid out to certain U.S. employees following President Donald Trump’s Tax Cut and Jobs Act.
Shares of the Purchase, New York-based company rose as much as 1.4 per cent to $102.98 in early trading on Thursday.
DEVELOPING MARKETS SHINE
First-quarter sales in Latin America rose 14 per cent, while they increased 15 per cent in Europe and sub-Saharan Africa.
Sales in Asia, the Middle East and North Africa climbed 7 per cent.
This was in contrast to sales in all the company’s North America units.
The Frito-Lay snacking business rose 3.4 per cent in the reported quarter, but missed expectations of 4 per cent growth. Quaker North America sales were flat due to negative pricing. “All North American units miss (but) LatAm surprisingly strong,” Evercore ISI analyst Robert Ottenstein said.
Excluding items, Pepsi earned 96 cents per share, beating analysts’ average estimate by 3 cents, according to Thomson Reuters I/B/E/S.
Total revenue rose 4.3 per cent to $12.56 billion, topping analysts’ estimate of $12.40 billion.
PepsiCo also stuck to its full-year 2018 guidance. (Reporting by Nivedita Balu and Siddharth Cavale in Bengaluru; Editing by Patrick Graham and Sriraj Kalluvila)