According to a study of Nielsen Holdings, consumers in the U.S. spent $124 billion on snack foods in 2013. Moreover, with an increase in consumer spending, this number is expected to rise further. Thus, it is clear that the snack makers should have a good time selling their snacks. Moreover, newer healthy options in the market, such as oven baked chips by PepsiCo’s (PEP, Financial) Frito-Lay, has attracted more customers.
PepsiCo, as a beverage company, has suffered from customers’ declining interest in soda, which has ultimately affected its sales. However, the company managed to perform better than the other industry peers mainly because of its diversified portfolio of products, which includes the most popular snacks in the world. Thus, the food and beverage company reported a blockbuster quarter, wherein the numbers were ahead of the Street’s estimates. The announcement of the results enabled its share price to surge.
What made the results top estimates?
Revenue dropped 1% to $19.95 billion, over last year’s quarter. This decline was mainly due to unfavorable currency fluctuations which affected most of the companies this quarter. Also, weakness in Russia, the second largest market after the U.S., also affected the sales of the company. However, the beverage giant’s organic growth stood at 3%. The top line was higher than the analysts’ estimate of $19.78 billion.
Despite lower soda sales, the retailer managed to register volumes growth. This was mainly because of growth in its snacks business. Also, unfavorable effects of a stronger dollar were offset by an increase in product prices.
Beverage sales in America rose 3% over last year and were helped by higher prices of its products. Also, new product introduction attracted more customers. In fact, revenue from new products make 9% of the total revenue.
Earnings for the quarter fell to $1.31 billion from $1.74 billion in the prior year. The bottom line was affected by charges related to Venezuelan business, restructuring costs and currency headwinds. Excluding these one-time expenses, earnings came in at $1.12 per share, higher than the estimate of $1.08 per share. The retailer is also cutting costs from the last two years, which has helped expand its margins.
Some positives to note
Frito-Lay North America snacks division performed well during the period and was driven by higher volumes as well as increased product prices. Thus, the segment which sells Doritos and Cheetos registered a growth of 3.5% to $4.37 billion.
Introduction of new products in Frito Lay such as Rold Gold Chocolate, Cheetos Bag of Bones, Tostitos Rolls and Lay’s Wavy Dipped in Chocolate, attracted customer attention. This helped in offsetting the softness in Mountain Dew and Tropicana. The noncarbonated beverage volumes were up 4%, but soda volumes dropped 2% during the quarter.
Further, its performance was better than that of its rival Coca Cola. Coke’s earnings plunged 55% and revenue dropped 2% in its last reported quarter. This is because of the company’s dependence on beverages only, whereas PepsiCo has a diversified portfolio.
Therefore, both the companies have introduced products such as teas, flavored water and juices to attract the health conscious customers. These products have become quite popular among customers.
Winding up
PepsiCo is well cushioned because of its snack food business. Even in the beverage business, new products are contributing to the top line. New product addition and increase in product prices have helped the company offset the effects of currency fluctuations. Moreover, it plans to return $8.5 billion to $9 billion through share buybacks and dividends to the investors. Overall, PepsiCo is a must pick, especially because of its diversified portfolio of products and its creativity.
