Food and beverage giant PepsiCo (NASDAQ:PEP) unveiled better-than-expected quarterly earnings results on July 9. The company easily beat analyst expectations on both revenue and earnings per share. In addition, it raised its earnings guidance for the remainder of the year.
Here are five things PepsiCo management had to say about the quarter on its analyst conference call.
Snacks led the way
We are very pleased with our performance in the quarter. Organic revenue grew 5.1%, with Global Snacks up 8% and Global Beverages up 2%. -- CEO Indra Nooyi
PepsiCo operates a diversified business. Its revenue is evenly split between food and beverages. Its food business, led by the snacks brand Frito-Lay, is performing much better than its beverage business. As consumers turn away from sugary beverages like soda, it's getting harder for PepsiCo and chief rival The Coca-Cola Company to grow soda sales. For example, PepsiCo grew revenue in the Americas Beverage division by just 1% last quarter, year over year.
Fortunately for PepsiCo, the company's snacks business is thriving, and growing at a high single-digit rate.
Emerging markets on fire
Turkey and Saudi Arabia achieved double-digit organic revenue growth. China, Egypt and the Philippines achieved high single-digit organic revenue growth, and Mexico achieved mid-single-digit organic revenue growth. -- Nooyi
PepsiCo's focus on emerging-market penetration is a smart strategy, because those markets are growing much faster than more developed regions like the United States. PepsiCo's core geographic efforts are centered in Latin America and Asia.
PepsiCo grew organic revenue by 23% in its Latin America Foods division. Organic revenue rose 5% growth in Asia, the Middle East, and Africa. Overall, PepsiCo's developing and emerging markets grew organic revenue by 11%.
Innovation is crucial
Our innovation success today is the result of significant investments in and changes to our innovation research and development capabilities and processes that began about eight years ago. -- Nooyi
PepsiCo credits a lot of its success during the past several years to its innovation. Before PepsiCo refocused itself on innovation, the company was extremely decentralized, with scattered geographic units each forming its own goals and agendas. That structure led to less-efficient use of the company's massive resources and scale opportunities, and it fell behind in innovation, as well.
Since then, PepsiCo has transformed itself. The company formed specific global groups with the stated goal of coordinating innovation. One example was its proprietary Demand Moments initiative, which focuses on examining consumer needs. Another part of this was to strengthen research and development. PepsiCo's R&D investments have increased almost 40% from 2011-2014.
New products fuel the future
Over the past three years, we have introduced a number of new products that have achieved or are on pace to achieve more than $100 million each in annual retail sales. -- Nooyi
PepsiCo continues to launch new products that keep up with constantly evolving consumer tastes. Some of the products mentioned include Tostitos Cantina, Mountain Dew Kickstart, and the Doritos-Cheetos multi-pack mix. In addition, PepsiCo has relaunched Caleb's Kola, and is in the process of launching a new craft premium soda called DEWshine.
Separately, the company has announced a new brand of craft soda called Stubborn Soda. The lineup includes six sodas that are made with natural flavors and include no high-fructose corn syrup, the sugar substitute that often gets criticized by consumers. The flavors include black cherry with tarragon, root beer, lemon berry acai, agave vanilla cream, orange hibiscus, and pineapple cream.
Results speak for themselves
We expect to return between approximately $8.5 billion and $9 billion to shareholders in 2015, through both dividends and share repurchases." -- Hugh Johnston, CFO
PepsiCo returns a great deal of cash to shareholders. Earlier this year the company raised its dividend by 7%, representing its 43rd consecutive annual dividend increase. According to the company, its annualized dividends per share have grown at 10% per year during the past 10 years.
The key takeaway for investors is that PepsiCo experienced balanced success across both its product categories and its geographic markets. The company continues to innovate and lead its industry, and shareholders are reaping the rewards.