PURCHASE, N.Y. — New product launches have contributed “significantly” to overall organic revenue growth for PepsiCo, Inc., said Indra Nooyi, chief executive officer of the Purchase-based company. For the first quarter ended March 19, net income attributable to PepsiCo was $931 million, equal to 64c per share on the common stock, down 24% from $1,221 million, or 81c, for the prior-year period. Net revenue for the quarter fell 3% to $11,862 million from $12,217 million. On a constant currency basis, core earnings per share grew 11% and organic revenue grew 3.5%.
|Indra Nooyi, c.e.o. of PepsiCo|
“We are more quickly and effectively lifting and adapting successful product launches from one market to another, driving more rapid expansion of our largest brands as well as our future billion-dollar brands,” Ms. Nooyi said during an April 18 earnings call with financial analysts. “For example, in the first quarter outside of North America, Lipton ready-to-drink tea grew 10%, Mountain Dew grew volume 9%, Gatorade grew 9%, Naked Juice grew 60%, Sunbites grew 42% and Cheetos grew 9%.”
New products account for approximately 9% of PepsiCo’s revenue growth, Ms. Nooyi said.
“That's really what we targeted for ourselves this year, and we're running close to that number again,” she said. “And typically what we look for within that is sort of a 75% line extensions, what we call ‘refresh innovation.’ News drives growth in this category.
“Then, 25%, we’d like it to be sort of ‘reframe and breakthrough,’ which is new platforms or substantial new packaging that can take the business to a whole new level.”
PepsiCo is in the process of reshaping its product portfolio to capitalize on consumers’ increasing interest in health and wellness, Ms. Nooyi said.
“Just to give you an idea, we track two sets of numbers,” she said. “First, what we view as everyday nutrition, which includes products that provide positive nutrients like grains, fruit and vegetables and protein, plus those products that are naturally nutritious like water and unsweetened tea. These products account for almost 25% of our portfolio by revenue.
“Second, what we view as guilt-free products. These include the everyday nutrition products plus diet beverages and other beverages that are below 70 calories per 12 oz and snacks with low levels of sodium and saturated fat. Guilt-free products account for approximately 45% of our portfolio by revenue.”
Growth of everyday nutrition products is outpacing the growth of the balance of PepsiCo’s portfolio, Ms. Nooyi said.
“Just to give you a few examples, we've broadened our beverage portfolio to lessen our reliance on colas, and today we have the leading noncarbonated beverage portfolio in the United States,” she said. “In fact, globally just 12% of our revenues comes from trademark Pepsi, and less than 25% comes from carbonated soft drinks on a global basis.
“We have invested in R.&D. to create advantaged sweetness solutions and lower-calorie products, and we are aggressively moving our portfolio to package and product combinations with fewer calories.”
Mtn Dew Kickstart, as an example, has 40 calories per 8-oz serving and, now in its third year, generated more than $300 million in estimated retail sales in 2015 and posted a 34% growth in volume during the first quarter of 2016, she said.
“We've also been shifting more of our beverage (advertising and marketing) to lower-calorie products in order to accelerate growth in strategically advantaged subcategories,” Ms. Nooyi said. “And we've increased the nutritional profile of our snacks and foods through the introduction of products like Smartfood Delights, which grew volume over 75% in the first quarter; reduced-fat Doritos, the top-selling Frito-Lay snack brand in schools, which grew volume 30% in the first quarter; and gluten-free Quaker Oats just to name a few.
“Net-net we feel pretty good about our portfolio transformation efforts.”
During the quarter, Frito-Lay North America operating profit increased 11% to $1,018 million on productivity gains and lower raw materials costs, which were offset partially by operating cost inflation and higher advertising and marketing expense. Segment revenue grew 3% to $3,418 million.
Operating profit for Quaker Foods North America advanced 68% to $166 million, as revenue fell 3% to $617 million. In addition to productivity gains and lower raw material costs, operating results benefited from lapping an impairment charge in the first quarter of the prior year associated with PepsiCo’s dairy joint venture, which ceased operations in the fourth quarter of 2015.
In North America Beverages, operating profit grew 7% to $485 million, reflecting the positive impact of productivity gains and lower raw material costs, partially offset by operating cost inflation and higher advertising and marketing expenses. Segment revenue increased 1.5% to $4,361 million.
Performance in PepsiCo’s international markets reflected the negative impact of foreign currency translation and higher marketing expense, which more than offset the positive impact of productivity gains. Latin America posted an operating profit of $175 million, down 20% from the year-ago period, and revenues of $1,042 million, down 26%. The Europe Sub-Saharan Africa segment saw operating profit fall 40% to $67 million and revenue decline 9% to $1,359 million. The Asia, Middle East and North Africa segment had an operating loss of $148 million and revenue to $1,065 million, up 1% from the year before.For the full year, the company expects to generate approximately 4% organic revenue growth excluding the impact of an extra week, and an 8% increase in core earnings per share on a constant currency basis excluding the deconsolidation of Venezuela operations.