Business World

Monday 25 June 2018

PepsiCo benefits from cost cuts, strong North America snack sales

Beyonce has filmed an ad for Pepsi MAX
Beyonce has filmed an ad for Pepsi MAX

PepsiCo reported a better-than-expected quarterly profit as the company trimmed costs and demand rose in North America for its snacks, including Cheetos and Lay's chips.

Shares of the company, which also makes Gatorade energy drinks and Tropicana fruit juices, rose 1 percent in premarket trading on Monday.

PepsiCo has handled sliding demand for fizzy sodas better than rival Coca-Cola Co (KO.N) as its snacks business has offset much of the impact of a shift in consumer preference to drinks such as teas and fruit juices.

"We broadened our beverage portfolio to lessen our reliance on colas..." PepsiCo said in a statement, adding that just 12 percent of its revenue now comes from Pepsi colas, and less than 25 percent from fizzy drinks globally.

Sales in PepsiCo's North America snacks business, which accounts for more than a quarter of its total revenue, rose nearly 3 percent in the first quarter ended March 19.

Cost of sales fell 6.4 percent, with the company benefiting from lower prices of raw materials, including sugar.

PepsiCo's results marked a "very classic Pepsi quarter," UBS analyst Stephen Powers said, adding that the numbers showed the company's cost-control efforts were paying off.

However, PepsiCo's total sales fell 3 percent to $11.86 billion, the sixth straight quarter of decline, hurt by a strong dollar and weakness in some markets including Latin America and Europe.

Sales slumped more than 26 percent in Latin America, partly due to the exclusion of its Venezuelan business. Sales fell 9.1 percent in Europe and sub-Saharan Africa.

The net income attributable to PepsiCo declined nearly 24 percent to $931 million, or 64 cents per share, mainly due to an impairment charge of $373 million related to its interest in Tingyi-Asahi Beverages Holding Co Ltd.

Excluding items, PepsiCo earned 89 cents per share, beating the average analyst estimate of 81 cents, according to Thomson Reuters I/B/E/S.

Excluding the impact of currency movements, acquisitions and divestitures, sales rose 3.5 percent.

PepsiCo shares were trading at $104.78 before the bell.


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