More marketing for established brands and new beverages lead to gain in quarter
By Jennifer Maloney and Kimberly Chin
PepsiCo Inc. posted higher quarterly profit and sales as the food-and-beverage giant rolled out new products such as Pepsi Mango and ramped up marketing for some of its more established brands.
Under Chief Executive Ramon Laguarta, who took over from longtime chief Indra Nooyi in October, the company has been increasing spending on advertising and distribution networks, broadening its product lines and changing its packaging.
"We're trying to understand much better the consumer," Mr. Laguarta said Tuesday on a conference call with analysts.
Revenue in the company's North America beverages division increased 2.5% in the second quarter, as volume rose in ready-to-drink coffee and water brands such as Lifewtr and Bubly. The Pepsi and Mountain Dew brands, which slumped last year, continued to turn around, executives said. In April, the company introduced three new Pepsi flavors made with real juice and available at Target and Walmart stores in the U.S.
Gatorade continues to struggle, analysts say. Gatorade Zero, which was introduced last year, has been expanding the consumer base for the brand, Mr. Laguarta said. PepsiCo is also launching a new sports drink called Bolt24 with more natural ingredients such as electrolytes from watermelon -- an answer to BodyArmor and its acquisition last year by rival Coca-Cola Co.
Increased marketing spending also helped boost the company's Quaker oats business, including a return to volume growth for Aunt Jemima syrup and ready-to-eat cereals, the company said. Sales of those packaged foods had sagged in recent years as consumers spent less time in the center aisles of the supermarket browsing packaged foods.
Coca-Cola also has been experimenting with new variants of its flagship brand. The launch in February of Orange Vanilla Coke, its first new flavor in a decade, helped drive 6% growth in U.S. retail sales for the Coca-Cola brand in the first quarter. The soda giant is also expanding distribution overseas of coffee-flavored and energy-drink versions of Coke. It is slated to release second-quarter earnings later this month.
PepsiCo is opening a digital talent hub in Silicon Valley, aiming to create more personalized interactions with consumers through e-commerce. Meanwhile, its New York-based e-commerce team is experimenting with bringing to market quickly such products as grain-and-date bites and Izze Fruit Snack gummies.
Overall, the soda-and-snacks giant's revenue rose 2.2% from the year-earlier quarter to $16.45 billion. Organic revenue growth, which excludes currency fluctuations, acquisitions and divestitures, rose 4.5%.
As public concern mounts over plastic waste, the company last month said it would reduce the use of virgin plastic in the packaging of its water brands by offering Lifewtr in 100% recycled plastic and testing an aluminum-can option for Aquafina. It is also rolling out a high-tech water fountain that adds bubbles and flavors.
PepsiCo reported earnings of $2.04 billion for the quarter ended June 15, up from a year-earlier $1.82 billion and in line with analysts' estimates. Excluding one-time items, earnings were $1.54 a share, beating analysts' expectations for adjusted earnings of $1.50 a share.
Sales in the company's North America Frito-Lay division rose 4.5% in the second quarter. Sales in its Latin America division rose, but fell in its Europe and Sub-Saharan Africa division as well as its Asia, the Middle East and North Africa division.
The company, which affirmed its guidance for the full year, said it would make substantial investments in areas that would boost its manufacturing capacity, advertising and marketing.
Write to Jennifer Maloney at firstname.lastname@example.org and Kimberly Chin at email@example.com