PepsiCo has had an excellent quarter with a 1 % turnover increase and a 5 % profit increase, thanks to chips and snacks. Soda consumption dropped in the United States and in Europe, but CEO Indra Nooyi has made it clear a spin-off of that division is not on the table.
Results better than expected
PepsiCo’s worldwide chips and snacks sales grew 3 %, while soda’s (and drinks in general) grew 1 %, allowing turnover to grow 1 % to 21.1 billion dollars (some 15.4 billion euro).
Profit grew 5 % to 1.7 billion dollars (some 1.25 billion euro), largely because of the cost-cutting measures the company has started back in 2012 and which has to bring in a yearly benefit of 1 billion dollars. It seems to be working as profit soared above what analysts had expected, namely a profit of 1.6 billion dollars. The good news prompted the CEO, Nooyi, to extend the program to 2019, while it was supposed to end in 2014.
No spin-off for soda branch
Nelson Peltz, an activist investor, had urged PepsiCo to spin off the North American soda branch and analysts were eager to see how the group would react to this request, especially as sodas are in the eye of the storm because of health issues. Peltz also feels that PepsiCo should reform as a business, towards a snack giant focused on brands like Lay’s, Cheetos and Doritos.
The quarterly numbers back up his argument as North American soda sales dropped 2 %, while snacks grew 3 %, while Europe dropped 2 % in soda sales and grew 2 % in snack sales. CEO Indra Nooyi however stated there would be no spin-off: “Decoupling our beverage and snack businesses in North America would significantly reduce our relevance to our customers” and would diminish PepsiCo’s position as a prime supplier to distribution.
PepsiCo, the group owning Pepsi, Gatorade, Tropicana, Lay’s, Doritos and Quaker Oats, still managed to appease shareholders with dividends 15 % higher than anticipated and an increased share repurchase program in 2015, worth 5 billion dollars.