PepsiCo on Tuesday delivered better-than-expected third-quarter earnings that showed signs of growing consumer demand for its teas, Gatorade, namesake cola and other beverages in North American.
The 16 percent surge in profits was a victory for Indra Nooyi on her last day as CEO, after years of facing pressure to sell or spin the company’s beverage business as its growth has lagged behind that of its Frito Lay, Tostitos, Lays chips and other packaged snacks. While its snacks continue to command presence and sales in a crowded market, its beverages have grappled with slowing carbonated sales and competition from new upstart rivals. Nooyi, though, has said she believes the company is stronger with both product lines in its portfolio.
To revive the business, PepsiCo has picked three of its largest beverage brands, Gatorade, Pepsi and Mountain Dew, to throw its marketing dollars behind. Those efforts seem to have taken hold, with its North American beverage business posting organic growth of 2.5 percent, stripping out the impact of acquisitions and other variables. Last quarter, it was down 1.5 percent.
Meantime, the company has continued to invest in the beverage business, announcing in August plans to buy at-home carbonated drink maker SodaStream for $3.2 billion. SodaStream helped create the market for in-home soda making, but in recent years has promoted the product as a tool to make carbonated water, accommodating for changing tastes. It therefore gives PepsiCo a further foothold into both water and at-home appliances.
Here’s what the company reported compared with what Wall Street was expecting, based on a survey of analysts by Thomson Reuters:
- Adjusted earnings per share: $1.59, vs. $1.57 expected
- Revenue: $16.49 billion vs. $16.36 billion expected
Its stock was flat in premarket trading at $111.29 a share.
Pepsi reported fiscal third-quarter net income of $2.49 billion, or $1.75 per share, up 16 percent from $2.14 billion, or $1.48 per share a year earlier.
PepsiCo earned $1.59 per share on an adjusted basis, which strips out fluctuations in commodities prices, restructuring costs and some tax issues, beating the $1.57 per share expected by analysts surveyed by Thomson Reuters.
Net sales rose 1.5 percent to $16.49 billion, beating expectations of $16.36 billion.
PepsiCo said it expects revenue growth for the year of 3 percent. It also said that a strong dollar will negatively impact its fiscal year earnings by one percentage point. As result, it anticipates to earn $5.65 a share in fiscal 2018, up 8 percent from 2017.