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PepsiCo stresses ‘cautious optimism’ on brand Pepsi but profits plunge

By Ben Bouckley , 25-Jul-2012

PepsiCo claims it is ‘cautiously optimistic’ on the prospects for brand Pepsi, as its second quarter results released today revealed that total operating profits slumped 14%.

Total revenue fell 2% versus Q2 2011 to $16.458bn in the 12 weeks ending June 11, with PepsiCo noting disruption to sales caused by beverage refranchising in China and Mexico.

Total operating profit fell 14% in Q2 to $2.377bn and 9% in H1 2012 overall ($4.099bn) with a first half revenue of $28.886bn almost identical vis-à-vis 2011.

Beverage doldrums

Within PepsiCo’s beverage business itself, overall profits fell 9% to $2.718bn in Q1, before corporate costs were factored in.

This figure reflected profit declines in Asia, Middle East and Africa (AMEA) (45%) and theAmericas(15%), with Q1 turnover figures down in all three of PepsiCo’s beverage divisions.

But while European net revenues fell 5%, this was the only region where PepsiCo grew operating profit (up 11% to $453m), again before factoring-in corporate costs.

On a later conference call with PepsiCo management, Caroline Levy, an analyst at CLSA, asked for some color on the performance of brand Pepsi, given that it was “centrepiece of everything that you’re doing” as such a huge brand.

Deepen Pepsi’s global equity

PepsiCo launched its first ever global campaign, ‘Live for Now’ for the Pepsi brand on April 30, with the firm looking to strengthen its pop culture roots and, in the words of spokesman Brad Jakeman, “deepen its global equity in a relevant and authentic way”

PepsiCo Americas Beverages CEO Al Carey told Levy: “On brand Pepsi – our campaign began in April – and it’s very early to indicate if we’ve seen a result.

“But the thing I like to look at is our single-serve business, which has been the first indicator. That’s usually not impacted by these holiday and discounting overlaps.”

Carey added that PepsiCo was seeing growth for Pepsi in the single-serve format for the first time in a “very long time”, while its brand equity scores also improved in Q2.

“So some improvement – we have Pepsi NEXT in the marketplace, which is delivering about what we expected,” Carey said.

“We’re very happy with it, and recently we launched a TV campaign and two new flavors . So let’s say we’re cautiously optimistic on the brand,” Carey said.

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