PURCHASE, N.Y. — Cold-pressed juice, black bean tortilla chips and craft soda are contributing to profit growth at PepsiCo, Inc., which posted gains in the recent quarter behind product innovation and other initiatives. Net income attributable to PepsiCo in the second quarter ended June 11 was $2,005 million, or $1.38 per share on the common stock, up 1% from $1,980 million, or $1.33, in the prior-year period. Net revenue on a reported basis fell 3.3% to $15,395 million from $15,923 million. Excluding the negative impact of foreign currency translation and the deconsolidation of Venezuelan operations, PepsiCo’s revenue increased 3.3%.
 |
| Indra Nooyi, chairman and c.e.o. of PepsiCo |
“Product innovation and portfolio transformation are enabling us to provide consumers the delicious and convenient products they want and to satisfy their constantly evolving demands across a broad spectrum of occasions and need states,” said Indra Nooyi, chairman and chief executive officer, during a July 7 earnings call with financial analysts. “We have ramped up our innovation engine and as a result, new products comprise approximately 9% of sales or over $5 billion. We’ve achieved this by leveraging our global scale while simultaneously tailoring products to appeal to local tastes; addressing consumers’ evolving demands for convenience, taste and variety from the occasional treat to nutrition by transforming our product portfolio.
“So today, what we refer to as guilt-free products generates approximately 45% of our net revenue. And we are now recognizing consumers’ interests in craft, niche and premium products.”
On the success of Mountain Dew Kickstart, the company has introduced Mountain Dew Black Label, which Ms. Nooyi described as “a deeper darker Dew, made with real sugar and crafted with dark berry flavor and herbal bitters.” The product initially was released exclusively at approximately 600 colleges and universities, she said.
“In the second quarter, we also launched Aquafina Sparkling, a new line of flavored sparkling water that provides a light and naturally sweetened hydration option,” Ms. Nooyi said. “Aquafina Sparkling is offered in three delicious fruit flavors: black cherry dragon fruit, lemon lime and orange grapefruit. Each sleek single serve 12-oz can contains just 10 calories and the tiniest pinch of fair-trade certified sugar for a smooth crisp finish. Aquafina Sparkling will also be available in a multipack containing two flavors.”
From the Naked Juice brand comes Naked Pressed, a line of cold-pressed juices in five varieties.
“It’s sourced from cold-pressed whole fruits and vegetables and is Non-GMO Project verified,” Ms. Nooyi said. “And Pepsi has introduced 1893 From the Makers of Pepsi-Cola. It capitalizes on the cultural food revolution and is inspired by consumer interest in bold and interesting taste combinations.”
Leveraging more than 100 years of cola-making expertise, 1893 contains cola nut extract, sugar and sparkling water in original and ginger cola varieties and may be enjoyed as a standalone beverage or as a mixer for cocktails, she said.
“In the Quaker business, because consumers are increasingly seeking greater convenience, portability and nutrition in their breakfast, we have introduced Quaker Breakfast Flats, crispy baked snack bars that contain delicious ingredients that you can see like oats, real pieces of fruit, crunchy nuts, flax and sunflower seeds,” Ms. Nooyi said.
Available in cranberry almond, banana honey nut, and golden raisin cinnamon varieties, Quaker Breakfast Flats contain 18 grams of whole grain with less than 200 calories per serving, with no artificial flavors or added colors.
“Turning to Frito-Lay, we continue to expand our portfolio with a particular focus on premium offerings and healthy snacking options,” Ms. Nooyi said. “So for example, we’ve expanded our Simply line with the introduction of Simply Tostitos Black Bean chips made from real black beans. It’s Non-GMO Project verified, and Simply Tostitos Black Bean chips offer consumers an excellent source of fiber with 5 grams per 1-oz serving.
“And this Simply line has also introduced Simply Tostitos organic chunky medium salsa and Simply Tostitos organic black bean and corn mild salsa, and both salsa varieties are U.S.D.A. certified organic.”
Other new products include SunChips Veggie Harvest chips made with vegetables and whole grains, and Smartfood Delights sea-salted caramel-flavored popcorn, which has 50% less fat than regular Smartfood white cheddar popcorn, Ms. Nooyi said.
“So as a result of initiatives like this year-to-date, our Frito-Lay U.S. premium portfolio growth is outpacing the growth in the balance of the portfolio by a factor of more than four times, and we are extending our value shared leadership position in premium salty snacks.”
During the quarter, Frito-Lay North America operating profit rose 8% to $1,083 million for the quarter, and revenue increased 3% to $3,564 million. Operating profit for Quaker Foods North America increased 11% to $146 million, and revenue advanced 3% to $561 million. North America Beverages operating profit rose 6% to $881 million, while revenue increased 1% to $5,145 million.
In PepsiCo’s international markets, operating profit for Latin America fell 32% to $242 million, while revenue tumbled 23% to $1,717 million. In Europe, Sub-Saharan Africa, operating profit declined 4% to $337 million, and revenue fell 5% to $2,660 million. Operating profit for Asia, Middle East and North Africa was 3% higher at $383 million, while revenue for the division slipped 1.5% to $1,748 million.
For the first six months of the fiscal year, PepsiCo net income declined 8% to $2,936 million, equal to $2.01 per share, from $3,201 million, or $2.14, in the same period of the year before. Net revenue fell 3.1% to $27,257 million from $28,140 million.
Based on strong year-to-date results, PepsiCo has increased its full-year core e.p.s. target to $4.71 from $4.66, which would represent 9% growth over 2015 core e.p.s. of $4.57, excluding foreign exchange and the Venezuela deconsolidation. For the full year, the company expects 4% increase in organic revenue, excluding the impact of the 53rd week and structural changes.
