New York — PepsiCo, grappling with a slumping soda business, has got a boost from its food unit.
Strong sales of Frito-Lay chips and Quaker oatmeal helped PepsiCo beat per-share profit estimates by 9 US cents in the second quarter. The results sent the shares up 3% on Tuesday in early US trading.
PepsiCo, like rival Coca-Cola, is looking beyond sugary drinks to drive growth as Americans pursue healthier diets. PepsiCo’s latest quarter is another sign that consumers love its salty snacks: chips such as Tostitos and Ruffles have remained popular.
Fixing the struggling North American beverage unit remains a top priority for PepsiCo CEO Indra Nooyi.
She is facing a resurgent rival in Coca-Cola, which has been spending heavily on advertising, especially on the top brand.
"We’re maniacally focused on getting this business back on track," she said on a conference call with analysts.
Through Monday, the stock had fallen 10% in 2018, compared with a 3.2% decline at Coca-Cola.
Revenue was down 1% in PepsiCo’s North American beverage unit in the last quarter, while profit slipped 16%.
The results were hit by higher transportation costs and higher prices for aluminium resulting from tariffs, said chief financial officer Hugh Johnston.
Consumer giants ranging from PepsiCo to Nestlé are wrestling with changing tastes as shoppers turn away from sugary foods and drinks and seek out healthier fare. That has made it difficult for consumer firms to raise prices, pressuring results across the industry.
Consumption of carbonated soft drinks fell to a 32-year low in the US in 2017, said Beverage Digest, a trade publication.
While consumers are shunning fizzy drinks, chips remain popular with consumers. Profit in the company’s Frito-Lay North America unit, which also makes Cheetos and Doritos, was up 5% in the quarter. Core earnings were $1.61 per share in the last quarter, PepsiCo said.
Revenue was $16.1bn, slightly ahead of estimates.
For now, Frito-Lay is propping up the company, but if that unit were to stumble, PepsiCo could take a hit from investors, according to Ken Shea, an analyst at Bloomberg Intelligence.
"No business is bulletproof," he said. "It’s risky to keep relying on one unit."
Bloomberg
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