PepsiCo (NASDAQ:PEP) recently posted third-quarter earnings results that showed only a modest negative impact from the shopper behavior changes that continue to disrupt its core markets. Investors were happy to hear that the consumer staples giant is gaining market share in its snack and prepared foods segments while challenging to its main beverage rival, Coca-Cola.
In a conference call with Wall Street analysts, CEO Ramon Laguarta and his team broke down those market share shifts while adding context to their just-issued sales and profit outlook.
Let's look at a few highlights from that presentation.
The food difference
"Our global snacks and food businesses delivered 6% organic revenue growth, while our global beverage business delivered 3% organic revenue growth," Laguarta said.
Pepsi's overall 4% organic sales uptick represented a quick rebound from the flat result it posted in the prior quarter as COVID-19 temporarily paused much of the world's non-essential commerce. The beverage business improved sharply in Q3, with global volumes ticking up 1% compared to an 11% slump last quarter. That result likely again outperformed Coca-Cola's results, but investors won't know for sure until the beverage leader reports its latest metrics on Oct. 22.
Meanwhile, Pepsi's snack and food business continued to steal the show as consumers flocked toward hit brands in the Frito-Lay and Quaker Foods portfolios. Those divisions posted a healthy mix of increased volumes and rising prices.
Innovation in the beverage portfolio
"Our market share trend within the liquid refreshment beverage category improved versus the previous quarter and we gained market share in the coffee, tea and juice categories," Laguarta said.
Pepsi credits innovation, along with newly acquired brands, for helping its beverage segment get right back to growth at a difficult time for the industry. Sales gains were powered by newer products like Gatorade Zero, Mountain Dew Zero Sugar, and Pepsi Zero Sugar, which has grown 30% so far in 2020.
The company is just as excited about its growing energy drink portfolio, with brands like Rockstar just now joining Mountain Dew. That acquisition is one of the reasons why Pepsi believes it can sustainably boost beverage sales and profit margins over the next few years.
An uneven recovery
"We do expect our North America businesses to remain resilient for the balance of this year, while the recoveries across international markets will likely remain uneven across both developed and developing and emerging markets," CFO Hugh Johnston said.
Pepsi issued a new short-term sales outlook calling for 4% organic sales growth, which implies roughly stable results compared to the prior nine months. The U.S. food and beverage divisions are expected to lead the way, with international geographies looking weaker as a group.
Pepsi's forecast predicts that earnings will fall slightly for a second straight year, this time due mainly to extra pandemic costs. As for growth, management's new outlook matches the initial prediction executives issued before COVID-19 began reordering global commerce trends in February. It also leaves the possibility in place that the consumer staples giant will notch an annual growth result that improves on 2019's blockbuster 4.5% increase.