Pepsi profits despite commodities crunch

By Neil Merrett

- Last updated on GMT

Related tags Cent Pepsico

PepsiCo's third quarter revenues increased by 11 per cent to
$10.1bn (€7bn) over the same period last year, the company reported

Operating profit was also up 11 per cent to $2bn (€1.4bn) for the twelve week period ending 8 September, with operating margins rising three percentage points to 20 per cent. The company said after the announcement that it remains on track to meet full year profitability as improved sales for its snack and beverage brands and ongoing cost cutting measures allowed the group to offset increased commodity prices. Group chairperson Indra Nooyi said the group had continued to benefit from diversification into new segments and international markets, which all contributed to the growth. "All of the company's operating divisions successfully navigated through an environment of higher input costs in order to deliver balanced top- and bottom-line performance,"​ she stated. Nooyi added that both an improved global focus on working with major retailers and manufacturers to push its brands, and a company wide drive for sustainability were creating a solid foundation for growth in the year ahead. "We laid the groundwork for future growth,"​ she stated. "Our successful partnerships with Unilever and Starbucks expanded internationally. We closed on the acquisition of Sandora Beverages and, with PepsiAmericas, became the leadingUkrainebeverage company."​ The company said it had also been added to the Dow Jones Sustainability World Index, due to its efforts in reducing waster and conserving energy throughout its operations. Of PepsiCo's divisions, Frito Lay North America, which produces snack brands including Lay's potato chips, posted a six percent increase in revenues to $2.8bn (€1.9bn) for the period. The company attributed the growth to increased prices of its goods. A decline in sales for the group's Lay's potato chips range, was offset by volume gains for products like Doritos and Sunchips, Pepsico said. The group claim that a healthier focus through products like Chewy Granola and Rice Snacks had led to double-digit revenue growth for its Quaker snacks segment. Operating profit for the segment grew by seven per cent to $742m, which the company said reflected greater cost efficiency in its operations, allowing the group to offset increased marketing and commodity expenses. At the group's PepsiCo Beverages North America division, revenues increased by three per cent to $2.6bn (€1.8bn), despite some difficulties with its traditional beverage brands. Sales volumes of carbonated soft drinks (CSD) fell by three per cent, while the group's non-carbonated brands posted a 2 per cent increase in sales on the strength of the Lipton ready-to-drink teas and energy drinks, the company said. The division was hit by sales declines in its fruit juice drinks segment on the back of higher prices for its brands in a bid to offset the higher cost of commodities. The overall improvement in revenues helped drive a seven per cent rise in operating profit to $649m (€457m), according to the company. The Quaker Foods North America division underwent a two per cent improvement both in revenues and operating profit. Through its international segment, PepsiCo International, the company posted a 22 per cent rise in revenues, in a further sign of the importance of emerging markets in Asia, South America and Eastern Europe to processors. Operating profit increased by 19 per cent to $707m (€498) in relation to both strong snack and beverage growth across the division, PepsiCo stated. Sale volumes for the company's snack brands grew by seven per cent, owing to growth in Russia, the Middle East, Brazil, China and India. The UK potato chip brand Walkers potato small volume declines, while a strategy of increased prices for its Sabritas brands enacted in 2006 had resulted in falling sales. In beverage production, volumes were up eight per cent, due to the strength of markets in Pakistan, China, the Middle East and Russia, though there was a decline in Mexico, the company said. Unlike the group's North American beverage segment, CSD sales improved through the group's key brands like Pepsi, 7-Up, Mirinda and Mountain Dew. However, it was non-carbonated alternatives that dominated beverage growth through brands like Lipton ready-to-drink tea, which posted volume growth of 40 per cent, according to the company.

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