PepsiCo (PEP 0.40%) reported third-quarter earnings on Wednesday. Here's what you need to know about the results.
Quick recap
PepsiCo's third-quarter organic net revenues grew 3.3%, which was aided by its snacks and dragged down by its beverages. The beverage and snack food giant's profits came in at $1.23 per share, which was roughly flat from a year earlier. Shares were up immediately following the announcement.
Just Tuesday, rival Coca-Cola (KO 0.28%) unveiled relatively flat third-quarter results. Yet, given the same currency headwinds and macroeconomic volatility, PepsiCo weathered through and displayed a decent quarter, attributed mostly to PepsiCo's strength in its snack food sales.
Slowing emerging-market gains
Both PepsiCo and Coca-Cola are pursuing emerging-market growth in order to gain market share for their brands. Yet the slowing rate of emerging market gains is a concern. But in developing and emerging markets, organic revenue grew 9% for the quarter. China and Pakistan performed particularly well for the segment, with both countries displaying double-digit growth in both snacks and beverages. Sales growth also came from large Latin American developing markets. For example, third-quarter organic revenues grew 9% in Brazil. Meanwhile, Latin American consumption was flat for Coca-Cola in the third quarter.
Fizzling soda consumption helped by savory snack growth
Americans are drinking less soda than they did a decade ago. In the midst of this declining domestic soda consumption, PepsiCo's closely watched American beverage segment saw organic net revenues contract 2%. Yet PepsiCo's Frito-Lay North America segment saw organic revenues grow 5% for the third quarter, aided by strong innovation from its Tostitos Cantina, Doritos Jacked Ranch Dipped Hot Wings, Cheetos Mix-Ups, and Lay's Do Us a Flavor brands.
Fate of PepsiCo's beverage business
Activist investor Nelson Peltz recently called for PepsiCo to spin off its beverage business and buy snack-and-candy giant Mondelez International. Peltz, who's accumulated huge positions of both PepsiCo and Mondelez shares, feels PepsiCo's underperforming drinks segment is weighing down its mighty snack-foods business.
Despite challenging soda sales, PepsiCo CEO Indra Nooyi points to the company's productivity improvements to date. By year-end, PepsiCo is on track to deliver $900 million in savings and an overall targeted $3 billion in savings by 2015. Yet Nooyi hasn't dismissed the notion of restructuring its North American beverage business. She's expected to provide an update in early 2014 to address those efforts.
