» » PepsiCo outshines Coca-Cola as profit beats expectations - FT Report

Maker of Mountain Dew benefits from smoother shift to healthier products than rival

PepsiCo profits beat expectations in the first quarter, boosted by sales of “guilt-free” snacks and drinks as the company tries to appeal to more health-conscious customers.

The results, announced on Wednesday, followed a weaker performance by its main rival, Coca-Cola, underscoring PepsiCo’s success in adapting to changing consumer tastes and diversifying from sugary soft drinks. 

The maker of Mountain Dew and Quaker Oats reported adjusted earnings rose nearly 6 per cent to 94 cents a share, beating consensus forecasts of 92 cents a share. Sales climbed 1.6 per cent to $12.05bn, eclipsing estimates of $11.98bn. 

Sales of “guilt-free” products, such as diet carbonated drinks and baked crisps, now account 45 per cent of revenues, PepsiCo said. 

Indra Nooyi, chief executive, said the group had managed to increase revenues “despite challenging food and beverage industry trading conditions in North America”. 

PepsiCo has been adding new products to reduce its reliance on its namesake Pepsi brand, which makes up about 12 per cent of total sales. In the past year it has introduced drinks such as probiotic versions of its Tropicana juices and has acquired Kevita, a maker of kombucha, the fermented tea drink, and other beverages. 

Coca-Cola, the world’s largest soft-drink maker, on Tuesday reported that first-quarter sales had dropped 11 per cent to $9.1bn as it restructures its business. The Atlanta-based company has been selling off chunks of its bottling divisions to diversify away from fizzy drinks. 

James Quincey will take up the chief executive role at Coca-Cola in May to lead a turnround strategy, replacing Muhtar Kent. Mr Quincey said on Tuesday that the group would axe 1,200 jobs as it looks to cut costs by $800m a year. 

Mr Quincey, who has worked at Coca-Cola for two decades, is looking to recast the company, pledging to use ingredients with less sugar, to become “bigger than the Coca-Cola brand”. Analysts at Wells Fargo warned that challenges would “remain very strong for the near-term” but said the company was “doing the right things” to address them. 

Coca-Cola reported adjusted earnings of 43 cents a share in the first three months of the year. It said structural changes accounted for 10 per cent of the fall in revenues. Mr Kent said the results were “in line with our plan” and had been “adversely impacted” by Easter falling earlier this year. “We continue to execute against the long-term strategic transformation plan for the company,” he said. 

PepsiCo this month drew ire on social media for an advertisement depicting model Kendall Jenner joining a demonstration and offering a police officer a can of Pepsi. The company axed the ad and apologised after being condemned for trivialising civil protests. 

PepsiCo shares fell about 1 per cent in morning trading as lower than forecast profit margins, particularly in emerging markets where higher commodity prices have pressured the bottom line, weighed on investor sentiment.

Copyright The Financial Times Limited 2017

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