PepsiCo Turnaround Under Way as Third Quarter Beats Expectations
PepsiCo (NYSE: PEP), the world's largest snack food maker, beat analyst estimates for the third quarter although earnings were down compared to the third quarter of 2011. Net income was down five percent compared to last year at $1.902 million for a fully diluted earnings per share of $1.21 for the third quarter. Net revenue also declined by five percent to $16.652 million.
The company stated that the decline in net revenue was largely due to “previously announced structural changes Primarily beverage refranchisings in China and Mexico), and a negative 5-percentage point impact from foreign exchange translation.”
PepsiCo Chairman and CEO Indra Nooyi said in a statement, “PepsiCo is diligently executing the strategy we set forth at the start of the year, and we remain on track to achieve our full-year targets. Our disciplined pricing and sustained investment in brand building drove 5 percent organic net revenue growth reflecting 1 percent organic volume growth and 4 percent effective net pricing.”
One of the company's key strategies is to increase spending on marketing in an effort to boost beverage sales in North America and to sell snack foods at higher prices. During the third quarter, sales volume increased by one percent and pricing increased by four percent giving organic growth of five percent.
In its summary of operating results by division, despite organic revenue growth it is clear that higher commodity costs had a negative impact on earnings in both food and beverages. Operating earnings were further pressured by increased spending on advertising and other marketing activities.
During the third quarter, PepsiCo booked $83 million in restructuring charges and reported a total of $193 million in restructuring charges for the year to date. Another $205 million in charges is expected in the fourth quarter but that will end the biggest part of the restructuring program. Restructuring is expected to cost only another $129 million from 2013 through 2015.
PepsiCo left its full-year guidance unchanged, looking for fully diluted earnings per share of $4.40, down about five percent from last year.
At mid-day, PepsiCo shares are trading up about 0.15 percent.
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