PepsiCo Q1 sales clear last year’s pandemic-inspired surge with innovations in snacks, energy drinks
The company also established a strong foundation for future growth with “consumer centric innovation” in the energy and snacking segments, where company executives say they see significant growth potential as mobility returns to the US and consumers continue to balance additional obligations that arose out of the pandemic.
With a net revenue increase of 6.8% that reflects a nearly 5 percentage point benefit from strategic acquisitions, including energy drink brand Rockstar, and a 2.4% increase in overall organic revenue growth that reflects strong sales of snacks and breakfast items as well as positive responses to beverage innovations, CEO Ramon Laguarta and CFO Hugh Johnston said in prepared written comments they are happy with the company’s first quarter results and outlook for the remainder of the year.
“We successfully overcame challenges related to difficult year-over-year comparisons, uneven recoveries across many of our international markets and weather-related business disruptions in the US. Our results are indicative of the strength and resilience of our highly dedicated employees, diversified portfolio, agile supply chain and go-to-market systems and strong marketplace execution,” they said in the joint statement.
Snacks & breakfast drive growth
Key drivers of the company’s overall growth came from Frito-Lay North America and Quaker Foods North America, which both lapped difficult prior-year comparisons due to the surge in consumer demand in March last year.
Frito-Lay North America delivered 3% organic revenue growth in the quarter and 10% two-year organic growth revenue due to is “continuous efforts to refresh its lineup of flavors and introduce consumer centric innovations, such as Doritos 3D Crunch and Cheetos Crunch Pop Mix,” the company reported
Iconic brands, such as Ruffles delivered high-single-digit net revenue growth off a large base, while smaller brands, including Funyuns and Off The Eaten Path delivered double-digit growth in the period.
Much of this growth came from smaller portions and multi-packs that PepsiCo fine-tuned to offer more personalization and different combinations to meet the needs of diverse households while many people stayed home during the pandemic, Laguarta told analysts during an April 15 call to discuss the company’s first quarter earnings.
As consumers become vaccinated and begin to venture back out into the world, he said he expects to see more growth around small format snacks and single-serve options, but the extent of that shift is hard to predict as it is still uncertain how many people will return to offices and when as well as what their comfort level will be for eating out.
Laguarta said he expects to have a better idea of shifting consumer shopping habits in the next six to nine months.
The future of Quaker Foods North America is a bit easier to predict, as the trend of eating breakfast at home is more likely to stay even as economies reopen, according to the executives’ prepared comment.
Quaker Foods North America delivered 1% organic revenue growth in the quarter and 8% over the last two years as it offers an easy solution for at-home breakfast and captures additional opportunities for growth in lite snacks and side dishes, the company reported.
Push into energy lifts beverage sales
PepsiCo Beverages North America also performed well with energizing results from the relaunch of Rockstar, the introduction of Mtn Dew Rise Energy and ongoing strong sales of coffee products, according to the company.
After acquiring Rockstar Energy for $3.85 billion last year, the company has invested heavily in redesigning the brand with a new logo and fresh packaging as well as raising awareness with a Super Bowl ad featuring Lil Baby.
These efforts have been rewarded with a sales emerging out of the flat to negative area and into “positive territory that is quite, quite high,” Laguarta said. But, he added, with just six weeks under its belt since the relaunch it is too soon to tell if the brand is attracting new consumers or whether those consumers will stay with the brand. He explained the company needs a few more quarters to really understand what is happening at the consumer level.
The company also recently launched in Germany Rockstar+Hemp, but Laguarta warned analysts not to look for broader conclusions about where the company might take the brand in the US. He explained that Germany has a sizable hemp drink segment, but in the US the company will remain focused on pure energy and the morning opportunity, which he says is not well covered.
With regards to morning energy, PepsiCo’s launched in March Mtn Dew Rise, which has generated positive initial consumer reaction thanks to the company’s marketing and R&D teams performing “a phenomenal job in finding a very particular insight on the need for morning energy that is unique and differentiated,” Laguarta said.
Finally, he noted, more classic sources of energy, including PepsiCo’s partnership with Starbucks to sell its canned double and triple shot espresso beverages continues to do well. Sales of the products continue to grow double digit after many years – creating “a unique and defensible” position for the company, he said.
Positive outlook for 2021
Looking forward, PepsiCo expects organic revenue growth to accelerate in the second quarter as vaccination efforts accelerate mobility, which in turn will benefit its foodservice channels, while pandemic-related adoption of eCommerce and large formats continues to sustain at home sales.
With this in mind, the company predicts for the remainder of 2021 mid-single-digit organic revenue growth, and high-single-digit core constant currency earnings per share growth.