US: PepsiCo posts growth despite US beverage weakness

By | 23 July 2008

PepsiCo has posted a lift in sales and profits for its latest quarter, despite slipping operating profits at its Americas Beverages unit.

The company said today (23 July) that net sales for the three months to 14 June rose by 14% year-on-year to US$10.95bn. Operating profit for the group inched up to $2.18bn from $1.96bn, while net profit was up to $1.70bn from $1.56bn.

For the six months to 14 June, group sales hit $19.28bn from $16.96bn, while operating profit increased to $3.74bn from $3.38bn. Net profit climbed to $2.85bn from $2.65bn.

PepsiCo chairman and Chief Executive Officer, Indra Nooyi, said: "The strength and breadth of our global portfolio and geographic footprint delivered another quarter of solid results. PepsiCo continued to drive growth across its worldwide snacks and beverage businesses primarily through strong product innovation, well-executed pricing actions and focus on expense control and productivity." Nooyi continued: "We are proud of our first-half performance and confident that we are well-positioned to deliver on our outlook amidst a challenging macroeconomic environment."

The company said, however, that its PepsiCo Americas Beverages (PAB) division was being pressured in North America by the economic slowdown. The company said that the downturn had contributed to a decline across convenience channels and a reduction in the growth of unflavoured water.

PAB volume decreased 1% during the quarter, driven by a 3% decline in North America that was partially offset by a mid- single-digit volume increase in Latin America. As a result, net revenue grew 1% but operating profit declined 7%.

The North American carbonated soft drink (CSD) portfolio declined 2% in volumes. Mountain Dew and Sierra Mist both grew low-single digits, partially offsetting a mid-single digit decline in the Pepsi trademark. Non-carbonated beverages (NCB) volumes also declined 4% primarily due to a double-digit decline in unflavoured water.

Meanwhile, volume growth in the company's North American energy drinks portfolio - led by triple-digit volume growth for Amp Energy and more than 50 percent volume growth for SoBe Life Water -- was partially offset by mid-single-digit declines in juice. Gatorade volume was up slightly for the quarter.

The company said that its Latin America Beverage business (LAB) continued to produce strong top- and bottom-line growth. LAB's growth was driven by mid-single-digit growth in the CSD portfolio and double-digit growth in NCBs.

Meanwhile, PepsiCo International (PI) delivered over 20% revenue growth and over 30% profit growth from prior year. Pepsi said that the volume gains in snacks and beverages were made even as it continued to implement pricing actions across its markets.

UK and EU beverage volumes grew 20%, primarily reflecting the Sandora acquisition and the expansion of the Pepsi Lipton International joint venture, which together contributed 17 percentage points to volume growth.

UKEU net revenue increased 24%, reflecting volume growth and effective net pricing in major markets; foreign exchange contributed 11 percentage points and acquisitions 4 percentage points of growth. Operating profit grew 19% driven by net revenue growth and partially offset by increased commodity costs; foreign exchange added 9 percentage points and acquisitions 4 percentage points to growth.

In its Middle East/Africa/Asia division, the company saw beverages grow 10% in volumes led primarily by double-digit growth in the Middle East, China and India.  CSD volume grew at a high-single-digit rate and NCBs grew at a double-digit rate.  Net revenue for snacks and beverages increased 25%, reflecting volume growth and effective net pricing; foreign exchange contributed 6 percentage points to net revenue growth.  Operating profit grew 16% as a result of revenue growth, partially offset by higher commodity costs; foreign exchange contributed 4 percentage points to growth.

Looking ahead, PepsiCo said that it expects full-year 2008 performance of 3-5% volume growth, low-double-digit net revenue growth (including acquisitions and foreign exchange) and EPS of at least $3.72 excluding the impact of any mark- to-market gains/losses.

The company added that it was not able to provide guidance on the 2008 projected EPS growth including the impact of the mark-to-market gains or losses on commodity hedges due to the unpredictability of future changes in commodity prices.

Sectors: Soft drinks, Water

Companies: PepsiCo

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