PepsiCo chairman and chief executive officer Indra Nooyi said: “I am pleased with PepsiCo’s overall performance in the quarter. Our portfolio breadth, geographic reach and operating agility enabled us to deliver strong performance in a challenging global macroeconomic environment. Worldwide, our teams adapted their operating models – from refreshing our beverage line-up, to devising new value initiatives, to enhancing revenue management and expanding Power of One initiatives.”
Nooyi continued: “In addition to meeting our near-term financial commitments, we are focused on delivering growth over the long term by continuing our investments in brand building, innovation and supply-chain transformation. In spite of the economic slowdown, all of our businesses are performing at or above expectations, which gives me confidence in reaffirming our full-year guidance.”
Division operating results summary:
The following discussion of division operating results reflects constant currency net revenue and constant currency core operating profit results.
On a constant currency basis, PepsiCo Americas Foods (PAF) delivered 10% net revenue and 14% core operating profit growth in the first quarter, despite difficult year over year commodity cost comparisons.
On a constant currency basis, Frito-Lay North America (FLNA) had excellent results with 12% growth in both net revenue and core operating profit, driven by net revenue management and cost discipline. Volume was down less than 1%, primarily due to weight outs to cover commodity cost inflation. Frito-Lay US retail unit sales grew low-single-digits, reflecting strong in-store programming, consumer promotions and marketing campaigns.
As part of its continuing commitment to deliver value to consumers, FLNA recently began to add 20% more product into its take-home sized Doritos, Tostitos, Cheetos and Fritos products, without increasing the price.
On a constant currency basis, Quaker Foods North America (QFNA) net revenue was flat and core operating profit grew 7%. Core operating profit growth included the final settlement of the insurance claim related to the Cedar Rapids flood that occurred in the second quarter of 2008, which contributed 10 percentage points to growth. Quaker recently launched a new marketing campaign that aligns its entire product portfolio under the optimistic and encouraging umbrella tag line, “Go humans go.” The campaign will focus on communicating the health and wellness benefits of Quaker’s offerings.
On a constant currency basis, Latin America Foods (LAF) net revenue grew 11% and core operating profit grew 27%. Net revenue and core operating profit growth resulted from pricing actions, including weight outs, and disciplined cost control. Value-oriented promotions, such as Sabritas’ “Money in the Bag” campaign in Mexico, supported pricing actions to offset both commodity inflation and transaction foreign exchange headwinds.
Volume declined 5.5% in the quarter as a result of fewer trading days, a shift in the Easter holiday to the second quarter, and pricing actions to cover commodity inflation.
PepsiCo Americas Beverages (PAB) performed in-line with our expectations in the quarter as it completed the restaging of its North America Beverage (NAB) portfolio.
Volume declined 6%, partially attributable to the Easter holiday shift to the second quarter as well as challenging overlaps from the successful launch of G2 and Gatorade Tiger in the year-ago period. In North America, volume performance was impacted by a mid-single-digit decline in carbonated soft drinks (CSD) and a double-digit decline in sports drinks. On a constant currency basis, net revenue declined 9 percent and core operating profit was down 10%.
NAB’s CSD portfolio showed encouraging momentum in the quarter. Brand Mtn Dew continued to deliver strong performance, growing volume and market share. Brand Pepsi’s “Refresh Everything” marketing campaign was fully launched during the Super Bowl with strong consumer reception.
PepsiCo is continuing to feature innovation across its non-carbonated beverage portfolio. G2 grew mid-single-digits in the quarter and was named the most successful 2008 product innovation in the food and beverage category by IRI.
In the enhanced water segment, the company re-launched Propel at the end of the first quarter, adding two new sub-lines: Propel Body and Propel Mind, both of which deliver nutritional benefits.
SoBe Lifewater and Tropicana’s Trop50 (beverages featuring the all-natural, zero-calorie sweetener PureVia) exceeded expectations. And in the energy drink segment, Amp continued to deliver strong growth.
In the second quarter, NAB launched a reformulated version of Gatorade Tiger, featuring Theanine, an ingredient which has been shown to increase mental focus during physical activity when combined with carbohydrates and advanced hydration. The company expects that Gatorade will see improved momentum toward the end of the second quarter.
On a constant currency basis, PepsiCo International delivered double-digit net revenue and core operating profit growth, despite challenging global economic conditions.
On a constant currency basis, PepsiCo Europe’s net revenue and core operating profit were both up double-digits, reflecting strategic net revenue management initiatives, cost discipline across all markets and the impact of acquisitions.
Europe division snacks volume grew 1%, including 3 percentage points of growth from the Marbo acquisition. Volume growth was partially offset by the adverse impact of planned weight outs in response to higher input costs and 2 fewer trading days in key markets. Russia snacks achieved low-double-digit volume growth as a result of improved distribution and the strength of locally relevant brand extensions and product innovation, such as Red Caviar flavored Lay’s potato chips.
In the United Kingdom, Walkers grew value share across all channels through pricing discipline and the success of its “Do Us a Flavour” promotion.
Source: PepsiCo
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