Deep cost cutting boosts expectations at PepsiCo
Purchase, N.Y. • PepsiCo Inc. raised its forecast slightly for the year on Wednesday as it continued to slash costs while selling more of its snacks and drinks.
The company, which owns Frito-Lay, Gatorade and Quaker, said global volume for its snacks and drinks each rose 1 percent in the second quarter. While the gains were relatively modest, PepsiCo has been boosting its financial results with a cost-cutting plan expected to generate $1 billion in savings this year.
In its Frito-Lay North America division, PepsiCo said revenue was up 2 percent, as lower prices helped lift sales volume. Although the performance was muted, Chief Financial Officer Hugh Johnston noted in a phone interview that the unit is expected to benefit in the current quarter from the Lay’s "Do Us a Flavor" contest, which lets customers suggest new flavors. The finalists were recently announced — Cappuccino, Mango Salsa, Wasabi Ginger and Bacon Mac & Cheese.
Johnston said such special flavors are more profitable for the company, even if the prices are the same as regular flavors. That’s because PepsiCo puts fewer chips in those bags.
"There might be an ounce or two less," Johnston said.
In its closely watched North American beverage business, soda volume fell 2 percent while non-carbonated drinks rose 1 percent. On Monday, Coca-Cola also said non-carbonated drinks rose 1 percent, while soda volume was flat. The two companies have been struggling to boost beverage volumes in the region, given the growing competition from smaller players and the shift away from soda that has been underway for years.
PepsiCo now expects core earnings per share to rise 8 percent from 2013, instead of the 7 percent increase it previously forecast.
For the quarter, the Purchase, New York-based company said net income fell to $1.98 billion, or $1.29 per share. That was down 2 percent from a year ago, as restructuring and impairment charges took their toll.
Adjusted for one-time charges, earnings were $1.32 per share, topping the $1.23 analysts expected, according to Zacks Investment Research.
Revenue edged up to $16.89 billion, matching Wall Street forecasts.
PepsiCo shares have increased $6.23, or 7.5 percent, to $89.17 since the beginning of the year, while the Standard & Poor’s 500 index has climbed 7.3 percent. The stock has climbed $2.97, or 3.4 percent, in the last 12 months.