to produce new products geared towards the changing tastes of consumers who want healthier options in this market segment. PepsiCo has taken that seriously by doubling their research and development budget over the past 5 years. The effort has paid off with a new product line that has nearly doubled in revenue contribution to just under 10 percent of the firm’s total mix of brands. Hugh Johnston, PepsiCo’s chief financial officer said “the North American strength is a big driver behind raising guidance for the year because North America really is per- forming strongly right now.” Johnston added “consumers are willing to pay for affordable treats that they find are new and interesting and, frankly, a differentiated product.” Are there potential trouble spots for PepsiCo like the UK? Johnston says they are somewhat insulated from events such as Brexit in that their raw materials in Britain are grown in country. Declines elsewhere in economic growth are also of little concern given the price point of PepsiCo products. Johnston maintains that they keep their product prices low so demand in developing countries stays fairly stable when economies do not do well. The real positive for PepsiCo’s was cost of sales which fell 6 percent in the three months that ended June 11. The single item boosted net income by 1.3 precent. PepsiCo’s revenue actually fell 3.3 percent in the quarter, but the final number was still larger than market predictions. The revenue declines were in the North America Beverages unit, PepsiCo’s biggest business, which increased very slowly at only 1 percent while revenue from the Frito-Lay business grew at a rate of 3 percent adding extra favor for investors.
By Jamie Barrie I t is rare to see a company exceed market expectations these days, but after their second quarter results were released it is clear PepsiCo did which is refreshing to investors. The firm took the extra step of boosting their forecast on adjusted profit for the rest of the year. Sales of new beverages, increased demand for Frito-Lay snacks and lower costs for raw materials made the difference according to PepsiCo. Their relatively new line of “Simply” branded snacks and SmartfoodPopcornplayedabigpart in thepositive results. The company also pointed out Naked Cold Pressed Juice and Propel flavored water contributed excellent results. These new products have clearly found a niche.
PepsiCo doesn’t deny they are spending significant capital
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AUGUST 2016 • SPOTLIGHT ON BUSINESS
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