Pepsi posts “solid results” but growth rates fall in fourth quarter

Posted by Editorial on 16th February 2009

PepsiCo has reported net revenue growth of 10 per cent to US$43.3 billion for 2008, although a 3 per cent increase in net revenue for the fourth quarter suggests growth is beginning to wane.

Indra Nooyi, PepsiCo Chairman and Chief Executive Officer, said the company was well positioned to cope with America’s recession. “PepsiCo’s operating agility and disciplined execution delivered solid results in an extremely difficult year,” she said. “We expect 2009 will present a challenging environment. However, I am confident that we have robust plans and an experienced team in place to navigate capably through the turbulent environment. More importantly, we are well positioned to manage our business to deliver short-term results while also driving long-term sustainable growth.”

Frito-Lay North America (FLNA), their snacks division performed well in the fourth quarter as net revenue grew 7 per cent, reflecting growth across all retail channels in the United States. Core operating profit grew 9 percent, driven by successful net revenue management and favorable price elasticity, partially offset by higher commodity costs. Volume was down less than one percent in the quarter, attributable to weight outs.

In the second quarter of 2009, FLNA intends to increase its value offerings to consumers on its corn-based Tostitos, Fritos, Cheetos and Doritos by adding 20 per cent more product into its take-home bags without increasing the price as American consumers increasingly look for value amid a recession.

PepsiCo Americas Beverages navigated a challenging year in the United States as the liquid refreshment category declined for the first time on a year-over-year basis. PAB volume declined 3 per cent for the year. In the fourth quarter, the decline deepened as volume fell by 6 per cent and net revenue by 10 per cent partly due to the lapping of the launch of G2 and SoBe Lifewater in the year ago period as well as the timing of shipments related to the revitalisation of their North American beverage portfolio.
At the end of the fourth quarter, Pepsi began the rollout of a revitalised beverage portfolio into the North American market, with new brand identities for trademarks Gatorade, Pepsi, Sierra Mist and Mtn Dew, as well as key product innovations such as a new formulation of SoBe Lifewater, sweetened with PureVia, an all-natural, zero-calorie stevia sweetener recently approved by the FDA.

The disappointing results in the US were offset by strong results elsewhere. PepsiCo International delivered core operating profit growth for the year of 16 percent on snack volume growth of 8 percent and beverage volume growth of 13 percent.

In the quarter, the Middle East/Africa/Asia (MEAA) segment grew snack volume by 8 percent, driven by double-digit growth in China, and growth in other emerging markets such as South Africa and the Middle East. Beverage volume grew 13 percent and was broad-based, driven by double-digit growth in India and China.

PepsiCo explained that they had widened their guidance due to the uncertainty about the macroeconomic environment. “The company expects the first half of 2009 – and the first quarter in particular – will present the most difficult year-over-year comparisons, in part reflecting commodity costs and foreign exchange rates,” they advised.