PURCHASE, NY. — Zero varieties were heroes as PepsiCo Beverages North America, a business unit of Purchase-based PepsiCo, Inc., returned to growth in the third quarter ended Sept. 5.
PepsiCo companywide reported gains in net income and net revenues and gave full-year 2020 guidance of 4% organic revenue growth and about $5.50 in core earnings per share, which would compare with $5.53 per share in fiscal 2019.
Third-quarter net revenue for PBNA increased 6% for PBNA while operating profit rose 9% to $697 million. Volume-wise, a low-single-digit decrease in waters partially offset a mid-single-digit increase in Gatorade and a double-digit increase in energy drinks.
“Innovation has continued to play an important role in the portfolio,” said Ramon L. Laguarta, chief executive officer of PepsiCo, in a pre-recorded discussion on Oct. 1. “For example, Gatorade Zero, bubly and Mountain Dew Zero Sugar, in aggregate, have delivered more than $1 billion in retail sales on a year-to-date basis. We also continue to invest in our successful Pepsi Zero Sugar product, which has grown in its retail sales by more than 30% year-to-date.”
The encouraging financial numbers came after PBNA in the second quarter reported decreases of 7% in organic sales and 10% in organic volume.
In the third quarter, strong growth came in large-format and convenience and gas channels, Mr. Laguarta said, while the decline in foodservice moderated. Away-from-home business rebounded from the lows of April and May.
“There's more mobility,” Mr. Laguarta said in an Oct. 1 earnings call with analysts. “There's more traffic in some channels. I would say there's a lot of innovation in a lot of the customers. So they're adapting to the new reality. Especially, restaurants and some entrepreneurs are finding ways to adjust, but still (the away-from-home business) is a very big drag in our business. I would say in the levels of 30% to 40% versus year ago, negative, still in most of the developed markets.”
PepsiCo in the third quarter gained market share in coffee, tea and juice.
“In addition, our expanded presence in the energy category contributed to our net reported growth and reported operating profit in the quarter,” Mr. Laguarta said. “We are very excited about our expanded presence in this highly profitable category with our recent acquisition of Rockstar and distribution agreement with Bang.”
Companywide, PepsiCo posted net income of $2.29 billion, or $1.66 per share on the common stock, which was up 9% from $2.10 billion, or $1.50 per share, in the previous year’s third quarter. Net revenue grew 5.3% to $18.09 billion, up from $17.19 billion.
Costs associated with COVID-19 will continue.
“Our core operating margin decline moderated and was down 40 basis points in the quarter as we increased our advertising and marketing spend and experienced $147 million of hired labor, personal protective equipment and logistics and service costs associated with COVID-19,” said Hugh F. Johnston, executive vice president and chief financial officer. “When excluding the incremental COVID-19-related costs, our core operating margin increased 40 basis points.
“We expect some of the COVID-19-related cost to persist and remain committed to making necessary long-term investments to support our employees and customers while also investing in capabilities that drive competitive advantages for our business.”
Within Frito-Lay North America in the quarter, operating profit increased 5% to $1.35 billion. Net revenue increased 7% to $4.40 billion. Volume increased 3%, which primarily reflected double-digit growth in variety packs and dips, high-single-digit growth in Tostitos, and mid-single-digit growth in Ruffles.
Within Quaker Foods North America, operating profit jumped 15% to $145 million. Net revenue increased 6% to $608 million. Volume was up 4%. Double-digit growth in rice/pasta and light snacks drove volume growth.
PepsiCo companywide for the nine-month period ended Sept. 5 had net income of $5.28 billion, or $3.80 per share on the common stock, which was down 4.9% from $5.55 billion, or $3.96 per share, in the same time of the previous year. Nine-month net revenue of $47.92 million was up 3% from $46.52 million.