The beverage market has changed a lot over the last few years, as people have become health conscious and want more healthy drinks rather than the sugary ones. Thus, the beverage retailers have shifted their focus to making juices and other energy drinks for the customers. Further, this change in customers’ preferences has resulted in lower sales of carbonated soft drinks.
However, PepsiCo (PEP, Financial) seems to be managing its way out as it registered a blockbuster third quarter. The recently reported numbers are way ahead of the Street’s expectations, enabling the share prices to rise. Let us dig in deeper.
The impressive numbers
Sales jumped 2% to $17.2 billion, over last year’s quarter. This was ahead of analysts’ expectations of $17.1 billion. On an organic basis, revenue surged 3% as compared to the previous year. Ramped-up promotions, through advertisements and discounts, helped the company attract more customers. Also, an increase in product prices in the previous quarter drove the top line higher.
Going by the segments, snacks division is the most attractive segment for the retailer. Sales in the Frito Lay category jumped 3%, which helped in offsetting the weakness in other categories. But sales in the Quaker Food division declined 2%. The beverage segment reported flat sales since the decline in carbonated soft drinks was offset by growth in the non-carbonated drinks.
The beverage retailer also did well on the earnings front. The bottom line jumped 7% to $1.36 per share, much higher than the estimate of $1.29 per share. PepsiCo’s cost cutting plan, initiated in 2012, and productivity gains helped earnings grow.
By the geography
Revenue from AMEA (Asia, Middle East & Africa) region grew 11% over last year. Performance in this segment was driven by growth of 11% in snack volume and 3% gain in beverage volume. India is indeed one of the brightest spots and has great demand for PepsiCo’s products.
However, demand in the U.S. has been quite weak with a 1.5 % decline in soda volumes in North America. Another region, which registered sluggish performance, was Europe. Revenue from Europe dropped 1% over the prior year. Thus, the food and beverage giant is witnessing growth in the emerging markets but is suffering in the developed regions.
Looking forward
The company is making efforts to grow its stature. Firstly, it plans to expand its presence in India. It will be investing Rs. 33,000 crores in the region by 2020.
PepsiCo also opened a new R&D facility in Dubai in order to introduce new flavors for the people in the Middle East. The new flavors are expected to lure more customers to its products.
Final thoughts
Thus, the beverage retailer seems to be doing really well by attracting customers through strategies such as ads, discounts and new flavors. Along with a great quarter, the retailer revised its outlook for the year and now expects higher growth in the top line as well as the bottom line. Also, it announced its plans to give $3.7 billion of dividend and repurchase shares of about $5 billion. Hence, investors should be positive about this company.
