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Industryweek 10797 Pepsi

PepsiCo Profit Tops Estimates

April 18, 2016
Strong snacks sales in North America made up for weak  sales abroad.

PepsiCo Inc. (IW 1000/18) posted first-quarter profit that beat analysts’ estimates after strong sales of snacks in North America took the sting out of weaker results abroad.

Earnings were 89 cents a share, excluding some items, the Purchase, New York-based company said on April 18. Analysts estimated 81 cents, according  data compiled by Bloomberg. Sales fell 2.9% to $11.9 billion, matching analysts’ average projection.

With the strong dollar hurting sales abroad, PepsiCo’s Frito-Lay division bolstered the company’s results in the quarter. Sales at the unit -- which makes Doritos, Cheetos and Lay’s chips -- rose 3% to $3.42 billion, helped by a 2.5% increase in average pricing.

Chief Financial Officer Hugh Johnston said that he expects PepsiCo’s domestic business to continue balancing out the weakness in emerging markets with “struggling” economies.

“The American consumer is still doing well and still benefiting from lower gas prices,” Johnston said.“I think the U.S. business can continue to perform quite strongly.”

PepsiCo maintained its forecast for earnings of $4.66 a share this year, excluding some items. Analysts estimate $4.71.

Beverage Sales

Net sales in the North America Beverages division rose 1.5% to $4.36 billion. PepsiCo has increased its “better-for-you” offerings to appeal to customers wary of its flagship products. The company removed aspartame from Diet Pepsi in August, announced a partnership with smoothie maker BarFresh Food Group Inc. in October and introduced a line of healthy vending machines in December.

The company also released a new soda brand in March and opened a New York-based restaurant and event space in January to bolster its image with craft-loving millennials.

Net revenue from most of PepsiCo’s international units declined, driven by the dollar’s strength:

Europe and Sub-Saharan Africa sales fell 9.2% to $1.36 billion. Asia, Middle East and North Africa sales rose 1.3% to $1.07 billion. Latin America sales dropped 26% to $1.04 billion.

Flush with cash, the company is open to making acquisitions, but it hasn’t found the right target, Nooyi said at an analyst conference in February. Chobani LLC turned down an offer from PepsiCo to purchase the yogurt-maker in its entirety, instead looking for a minority investment. That move could have helped reignite growth in PepsiCo’s Quaker Food North America unit, which saw sales fall 3.4 percent to $617 million last quarter.

PepsiCo altered its U.S. management structure last month, combining its domestic beverage and snack units under one leader, Al Carey. The move reflects the company’s dedication to remaining one company after activist investor Nelson Peltz previously called for the two divisions to be separated.

Stifel Financial Corp. analyst Mark Swartzberg said in a report last week that combining the units is “unlikely to drive improving organic revenue growth.”

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