just on Call: PepsiCo sets timeline for soft drinks turnaround
PepsiCo outlined a series of plans to revitalise the business
PepsiCo has said it will give its North America carbonated soft drinks division between 18 and 24 months to turn itself around before revisiting its new strategy.
Earlier yesterday (9 February), PepsiCo outlined a series of plans to revitalise the business, including more investment in advertising, a streamlining of the company's management and a raft of job cuts. The announcement followed months of speculation about the future direction of PepsiCo.
Speaking to analysts and media at the firm's earnings conference yesterday, CEO Indra Nooyi told attendees that, having looked at all of PepsiCo's business units, the North America CSD division was found to be the only part of the entire portfolio that is "significantly under performing". She defined this as a "lower than average" performance.
"[North America CSD] was in the bottom net part of the quadrant, and that business is under performing for one simple reason, we have had extraordinary commodity cost inflation," Nooyi told attendees. "Had we not had extraordinary commodity cost inflation, we wouldn't even be having this conversation about North America CSD beverages.
"But that's the reality of the marketplace," she added. "We are going to go off and find every which way to improve the operational performance of the North America CSD business and we will look at structural options as a better way to run that business and improve the returns of overall PepsiCo, and it is for that part of the exercise we have given ourselves an 18 month plus time frame."
The soft drinks group has been under pressure to deliver a plan for long-lasting growth in its native North America, amid concern that the company has lost focus.
In yesterday's results, PepsiCo PepsiCo Americas Beverages reported net sales growth of 8% for the year, but a fall in operating profits of 4%. In North America, price rises offset volume declines in soft drink sales as the company lost volume market share to The Coca-Cola Co.
Outside of North America CSDs, however, Nooyi said the snacks and beverages divisions work well together, dismissing any suggestion that PepsiCo might revisit the idea of splitting the business if the review did not have the desired results.
Some analysts have agitated for the business to split in two to generate more value for the shareholders.
However, this is not an option for the time being. "We have taken it off [the table] right now, because it doesn't make sense," Nooyi said.
PepsiCo plans to cut 8,700 jobs, which represents around 3% of the US food and drink giant's global workforce. Nooyi declined to comment on specific geographies or divisions that might be affected.
"In the productivity programme we simplified the organisational structure. What happens in any countries is, you say between the CEO and the frontline there are going to be nine layers, and over time people come in and layers get added, then you go back and you get it back to nine. This is part of the ebb and flow of any organisation," she told attendees.
"We are creating a more streamlined structure. The number is 3% of the job force globally, the number in the US is much lower than the 3%," she added. "By and large it is really not feet on the street."
Nooyi, who has been at the helm of PepsiCo since 2006, has overseen a push into healthier products across both its snacks and drinks divisions. Yet, some industry observers believe it has distracted her from turning around the core soft drink business, which has suffered, particularly in North America.
However, she told analysts today that, despite her five-year anniversary at the helm approaching this year, she has no intention of stepping down yet.
"I love getting up in the morning and coming to work to PepsiCo... my hope, my goal, my desire is to keep running the company as long as I am creating value and as long as my board of directors want me to keep running the company."
PepsiCo's share price slumped 3.52% to $64.39 at 12.30 ET yesterday.
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