Comment - Encouraging results for PepsiCo

It’s been a good week for global beverage and snack maker PepsiCo as it booked a 16% increase in full-year profits on Thursday (11 February).

The figures were a decent set of results given the economic headwinds faced in the last 12 months.

And the firm’s bullish 11-13% earnings growth guidance for 2010 suggests PepsiCo believes the global economic recovery is set to accelerate this year, an encouraging sign for investors no doubt.

PepsiCo's share price gained 1.4% to US$61.20 in afternoon trading as the firm recorded earnings in line with estimates of $5.95bn for the 12-month period to the end of December.

While sales remained flat at $43.23bn ($43.25bn), PepsiCo International delivered double-digit gains in net revenue, while Europe also delivered “strong” results.

Much of the talk yesterday was about PepsiCo’s plans for growth.

Earlier this month, the soft drinks maker announced plans to triple sales from healthy food and drink with the launch of several new products.

The move is part of a strategy to treble the group's $10bn global healthy food and drinks revenues over a decade, with a focus on its “good for you” ranges, such as Tropicana juice.

CEO Indra Nooyi reiterated this on the firm’s earnings conference call yesterday, pledging to continue the launch of new snack products as well as speed growth in developing markets, which it expects to boost revenue and profits. The company has been expanding its international units and food products division in a bid to buffer the decline in US drink sales, something rival The Coca-Cola Co is also doing.

The performance dichotomy between mature and growing markets is certainly apparent in PepsiCo’s results.

Despite revenue growth in North America, PepsiCo's volumes fell in each of the region’s segments, with the exception of Frito-Lay, including a 5% volume decline in beverages.

The Coca-Cola Co has a potential edge over PepsiCo as more than three quarters of its sales are outside the US. PepsiCo's international sales are about half its revenue.

However, while mature markets continue to be a challenge, there appears to be plentiful growth opportunities in emerging markets.

PepsiCo's Asia, the Middle East and Africa (AMEA) division delivered strong growth in 2009, with net revenue up 12% and core operating profits up 23%. Beverage volumes grew 8% for the year led by 32% growth in India.

PepsiCo is making significant investment in manufacturing facilities and distribution infrastructure in markets such as China and India, a move analysts believe will fuel double-digit growth in both countries.

The most immediate need for PepsiCo, however, is to get its bottler deals closed, which CEO Indra Nooyi has pencilled in for the end of February.