There were plenty of things to like about PepsiCo's (NYSE: PEP) strong second-quarter numbers yesterday, but investors took a dour approach to weak sales of some of the items in its Quaker line of snacks, which caused Pepsi to lower its earnings outlook.
Pepsi said net income increased 12%, to $1.06 billion, or $0.61 per diluted share, with sales growing 8% to $7.1 billion. Its snack portfolio increased 6%, while beverages were up 10%. Soft drink volume was up 8%, with a push from its international markets.
However, despite the good signals, Pepsi lowered its full-year guidance to $2.29 per share, a $0.02 reduction from its old view.
It's not all bad news; the weakness in the Quaker treats was offset by healthy sales in the company's salty snacks. The items that don't seem to be making it with consumers were Quaker's Crisp'ums and Fruit & Oatmeal Toastables.
Many see Pepsi's snack portfolio as an advantage over rival Coca-Cola (NYSE: KO). Not only can it be essential not to have all your eggs in one basket, there's always the question on just how much the soft drink market can grow, given the constant drive to innovate while hitting on popular consumer trends. Speaking of which, with Atkins and South Beach low-carb diets being all the rage, snacks have been a tougher sell.
In the drink category, Pepsi said it's still enjoying the benefits of its highly popular vanilla-flavored Pepsi, launched last year. Among the upcoming innovations it discussed in its conference call (courtesy of CCBN StreetEvents) was a Mountain Dew Pitch Black for the Halloween season.
However, many of us are likely waiting anxiously to see how the new mid-calorie, mid-carb Pepsi Edge fares. There are already rumors that Coke's C2 is gearing up to be a high-profile flop, and not least of the reasons is the predicted abatement of interest in low-carb options (see Rich Duprey's Take on what may be dubbed the new "New Coke" yesterday). And of course, increasing hints that the low-carb craze has peaked bodes well for the aforementioned snack line.
Investors trimmed 3% off Pepsi's stock price yesterday. Maybe the slightly lowered guidance is a tad disappointing after last year's stellar 21% earnings gain, but when thinking about the long term, Pepsi has shown that it's resilient and in tune with consumer trends and innovations. Given this, one would be inclined to hope that yesterday's depression is what it should be -- just a temporary dip.
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Alyce Lomax does not own shares of any of the companies mentioned.
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