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PepsiCo tops expectations, with help of Frito Lay's popularity

Company will slash costs and focus on advertising to drive sales

PepsiCo's profit in the first quarter topped Wall Street expectations, boosted by the popularity of its Frito-Lay snacks and lower costs.

The global food-and-beverage maker said its snacks unit that includes Lay's and Doritos saw volume climb 3 per cent in North America, while pricing pushed up core revenue 4 per cent.

In a conference call, CEO Indra Nooyi cited examples of new products recently churned out by Frito-Lay in the U.S. including Cheetos Sweetos, a sweet version of its crunchy snacks, and Rold Gold Dippers, which pair pretzel sticks with sweet dips.

Its beverage unit for the Americas, which includes Mountain Dew and Gatorade, saw volume decline 1 per cent as sodas continued to struggle. But pricing drove up core revenue 2 per cent. A day earlier, Coca-Cola also said pricing helped push up revenue for North America, even though overall volume was flat.

PepsiCo's snack and beverage volumes rose in the unit encompassing Asia, the Middle East and Africa. But volumes fell in Europe, and the company's overall revenue was dragged down by unfavourable currency exchange rates.

For the full year, PepsiCo said it now expects currency translations to hit its core earnings per share by 11 percentage points as a result of the strengthening dollar. It had previously said it expected a hit of 7 percentage points. To mitigate the impact, the company says it will focus on controlling costs and raise prices as much as it can without scaring off customers.

Shares of PepsiCo were down 1 per cent at $96.25.

Like other companies that are facing slower growth, PepsiCo has said it will slash costs and focus on advertising to drive up sales.

During the quarter, PepsiCo said its advertising and marketing expenses rose in the double digit percentages for Frito-Lay and Quarter Foods unit. For the Americas beverages unit, it rose in the high single digits.

For the three months ended March 21, PepsiCo Inc. earned $1.22 billion, or 81 cents per share. Not including one-time costs, it earned 83 cents per share, beating the 79 cents per share analysts expected, according to Zacks Investment Research.

Revenue declined to $12.22 billion, but was more than $12.19 billion Wall Street expected.

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