Frito-Lay unit sales power PepsiCo's profit, revenue beat

[July 10, 2018]   (Reuters) - PepsiCo Inc <PEP.O> topped quarterly profit and revenue estimates on Tuesday as the company's strategy to offer more healthier beverages and focus on its snacks business paid off.

Sales at Frito-Lays snacks division continued to grow, rising for the second straight quarter, while its soda business in the second quarter posted its smallest sales drop in a year.

This comes months after Chief Executive Officer Indra Nooyi's decided to go "toe-to-toe" with bigger rival Coca-Cola <KO.N> by spending more on marketing its trademark colas.

Pepsi's beverages unit that makes carbonated soft drinks has been struggling to reverse a four-quarter decline in sales as consumer taste shifts to low-calorie and low-sugar alternatives.

To stem the slide, the company has been boosting its portfolio of healthier options to sodas by offering products such as Bubly, a flavored sparkling water and Gatorade Zero, a sugar-free sports drink.

"The majority of our businesses performed very well, particularly our international divisions propelled by continued growth in developing and emerging markets," Nooyi said in a statement.

"Our North America Beverages sector posted sequential net revenue and operating profit performance improvement."

Sales in its North America beverage unit fell about 1 percent to $5.19 billion in the quarter, but narrowly beat market expectations.

"We've been encouraged by PEP's early success with Bubly," Wells Fargo analyst Bonnie Herzog wrote in a pre-earnings note, adding that Bubly now commands a 4.4 percent share in sparkling water despite only being on the market for a few months.

 Bottles of Pepsi are pictured at a grocery store in Pasadena, California, U.S., July 11, 2017. REUTERS/Mario Anzuoni

Shares of Pepsi rose 2 percent to $110 in premarket trading after it reaffirmed its 2018 profit forecast. The company's stock has declined about 10 percent this year, steeper than bigger rival Coca Cola's <KO.N> 3.2 percent drop.

Pepsi has also been trying to overcome its sluggish beverage sales by ramping up its snacks business through a mix of new flavors, healthier preparation methods and attractive packaging.

These efforts led to a 4.3 percent rise in sales at its Frito-Lay division that makes Cheetos and Doritos tortilla chips.

Net income attributable to the company fell about 14 percent to $1.82 billion, in the quarter ended June 16, mainly due to higher costs for transportation and raw materials.

Excluding items, Pepsi earned $1.61 per share, beating analysts' average estimate of $1.52 per share, according to Thomson Reuters I/B/E/S.

Net revenue rose 2.4 percent to $16.09 billion, edging past expectations.

(Reporting by Aishwarya Venugopal in Bengaluru; Editing by Arun Koyyur)

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