The Low Post News

PepsiCo Sees Profits Climb

Net income at PepsiCo Inc was up by 13% during the first quarter on cuts in costs, price increases as well as one-time benefits that offset softer volumes and headwinds from foreign exchange at the beverage and snack giant.

The results that were better than had been expected should help CEO Indra Nooyi continue to push away the calls from some of the company’s investors, including Nelson Peltz an activist shareholder, to split the company up.

PepsiCo has lost market share to its chief rival in the soft drinks market Coca-Cola Co for a number of years, in both the U.S., as well as abroad.

The Lay’s potato chips maker and the maker of Tropicana juices said late last week its global volumes for snacks were up by 2%, while drinks remained flat from the same quarter one year ago.

That was lower than the growth of 3% and 1% respectively from the fourth quarter of last year and extended a trend that is now years long of snacks performing better than drinks.

However, price increases helped push up the drink and snack revenue by 3% and 5% respectively after making adjustments for divestments and currency swings.

PepsiCo posted a healthy growth in its key developing markets while showing signs of stabilizing the struggling U.S. drinks business even though there was a downturn industry wide in sales of soda.

Net income was $1.22 billion compared to $1.08 billion during the same quarter one year ago. It was helped by higher operating margins, less restructuring charges as well as a lower tax rate.

Revenue was higher ending at $12.62 billion compared to $12.58 billion, but was weighed down from divestments and weaker foreign currencies.

Peltz is campaigning for the company to be split up, arguing the snacks business that is faster growing is being held back by having to subsidize the drinks business, which is less profitable.

A recent survey of 100 Pepsi investors showed that 55% were in favor of splitting the company up.

However, CEO Nooyi argues that the company’s scale gives it a crucial leverage across the globe that lowers costs as well as improves clout amongst retailers.

The company is made up of 22 brands that include Gatorade, Quaker oatmeal, Mountain Dew and Doritos chips.

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