Lagging sales in core brands crimp PepsiCo’s 3Q sales

Soft drinks giant PepsiCo said on Tuesday that a focus on healthier and low-calorie drinks may have hurt third quarter sales.

The company’s CEO Indra Nooyi said that the company stocked shelf space with more of its newer, low-calorie drinks and spent too much on marketing promoting them at the expense of its core brands such and Pepsi and Mountain Dew.

PepsiCo, like all soft drinks companies have been playing a balancing act to reformulate its portfolio to reflect changing consumer tastes towards healthier, low-calorie beverages and away from high-calorie drinks. So the company has to weigh between growth of its newer low-calorie drinks and defending its position as the bulk of the firm’s beverage sales still come from its core brands –Pepsi and Mountain Dew.

“We’re on a multiyear journey to move people to healthier products, to lower-calorie options,” said Hugh Johnston, PepsiCo’s Chief Financial Officer. “You’re always sort of managing your pacing. How quickly will consumers change their habits?”

He added: “We just got ahead of our skis a little bit.”

Revenue in the third quarter ending 9th September rose 1% to $16.2bn, from $16bn in the previous year.

The soft drinks giant said that its Frito-Lay North American Division saw a 3% sales lift in the period to $3.8bn, from $3.7bn, while its North American Beverages Unit posted a 3% sales decline due to heavier focus on newer low-calorie drinks at the expense of its core brands.

The company’s Quaker Foods North American unit rose 1% in the period to $578m.

PepsiCo said it saw stronger sales growth abroad where it generates 40% of its revenue.

Latin America grew 6% to $1.9bn, helped by productivity gains, a favourable promotional spending accrual adjustment and prior-year incremental investments.

Europe Sub-Saharan Africa posted a strong 8% growth to $3bn, from $2.9bn, driven by productivity gains and prior-year incremental investments.

Asia, Middle East and North Africa saw sales decline of 4% to $1.56bn, from $1.63bn, negatively impacted by higher raw material costs (in local currency terms, driven by a weak Egyptian Pound) and operating cost inflation. Unfavourable foreign currency translation also weighed on the company’s operating profit by 13%.

The company said that third quarter profit rose 8% to $2.14bn, from $1.99bn in the previous year.

PepsiCo raised its adjusted earnings per share growth from 8% to 9%, as exchange rate impact is likely to be less than expected.

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