PepsiCo (NYSE: PEP ) reported second-quarter earnings on Wednesday. Here's what you need to know about the results.
PepsiCo's second-quarter organic net revenues grew 4.2%. The beverage and snack food giant's profits came in at $1.31 per share, blowing past Wall Street's expected Q2 profits of $1.19 per share. By comparison, PepsiCo booked earnings per share of $1.12 in the same quarter last year. Shares were flat following the announcement.
Just last week, rival Coca-Cola (NYSE: KO ) couldn't quench investors' thirst when it unveiled gloomy second-quarter results. The company mostly blamed unusually cool and wet weather for its underperformance. Yet given the same conditions, PepsiCo weathered thorough and displayed an impressive quarter.
Both PepsiCo and Coca-Cola are boldly pursuing emerging-market growth to gain market share for their cola brands. In PepsiCo's important Asia, Middle East, and Africa operating segment, Q2 organic revenue grew 14%, with growth in both beverages and snacks. Within this segment, Turkey performed well, posting 12% organic revenue growth. Revenues in China, Pakistan, and the Philippines each grew in excess of 20%. Strong sales growth came from large Latin American developing markets, too, where organic revenues grew 7% in Mexico and 15% in the rest of Latin America.
The company also posted solid growth in developed markets. PepsiCo's Frito-Lay North America segment saw organic revenues grow a savory 4.5% for the second quarter, and the division gained market share in the United States. Despite declines in domestic soda consumption, PepsiCo's closely watched American beverage segment posted a 4% gain in operating profit. Operating margins also expanded, attributed in part to productivity gains.
Views on PepsiCo's future
The company's appetizing Q2 results come a week after investor Nelson Peltz called for PepsiCo to spin off its beverage business and buy Mondelez International (NASDAQ: MDLZ ) , creating a global snack-foods empire. Peltz, who's amassed huge positions of both PepsiCo and Mondelez shares, says PepsiCo's underperforming drinks segment is dragging down its snacks unit.
PepsiCo management isn't keen on the idea. Although CEO Indra Nooyi admits sales of carbonated soft drinks in the U.S. remain "challenging," she points to improvements in productivity and the company's efforts to find ways to reduce calories in sodas while incorporating natural sweeteners. Yet PepsiCo is thinking about restructuring its North American beverage business, which has lost share to Coca-Cola during the past few years. Nooyi indicated that PepsiCo would provide an update early next year to specifically address those efforts.
Although PepsiCo has received criticism from Peltz and other investors, Nooyi's long-term strategy is coming to fruition. The company is on track to deliver $900 million in savings by year-end and an overall targeted $3 billion in productivity savings by 2015, and its stock is trading near all-time highs. It appears the company's hard work is starting to pay off.
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