PORTLAND, Ore (AP) — PepsiCo Inc. has found its recipe for success in this economic environment: raise
prices and grow overseas.
PepsiCo,
like many U.S. companies, recently have faced a balancing act during
this period of global economic uncertainty.
Many consumer brands from
McDonald’s to Nike have raised prices as they try to offset their higher
costs for ingredients, packaging and fuel. At the same time, they’ve
had to look elsewhere to expand their business as consumers in developed
markets like the U.S. have cut back on spending.
PepsiCo, maker
of such products as Mt. Dew soda, Gatorade drink and Lay’s potato chips,
showed Wednesday that the emphasis on higher prices and growing its
overseas business paid off in the third quarter. The company reported
that its profit rose 4 percent for the period, beating analyst
expectations.
PepsiCo earned $2 billion, or $1.25 per share, for
the quarter that ended Sept. 3. That’s up from $1.92 billion, or $1.19
per share, in the same quarter last year.
Excluding charges related to
its acquisition of Russian juice and dairy company Wimm-Bill-Dann and
other one-time items, earnings were $1.31 per share. PepsiCo’s revenue
climbed 13 percent to $17.58 billion.
The results beat analyst expectations of $1.30 per share on revenue of $17.11 billion, according to
FactSet.
The
company increased its sales volume in both snacks and beverages during
the period. Its biggest revenue gains came from overseas, with Europe
reporting a 37 percent revenue increase because of higher prices and the
addition of Wimm-Bill-Dann. Revenue for Asia, the Middle East and
Africa rose 25 percent on increased prices and volume growth,
particularly in emerging markets. The Latin America Foods unit posted a
19 percent increase in revenue, led by Mexico and Brazil.
In North
America, the company’s Frito-Lay business reported a 4 percent increase
in revenue on strong sales of its Lay’s Doritos, Cheetos and Ruffles
brands. Revenue for Quaker Foods North America edged up 2 percent on
higher prices and cost controls.
PepsiCo Americas Beverages has
been its softest segment as consumers have cut back on spending and
shown a preference for other drinks. The business posted a 3 percent
revenue increase, largely on higher prices. Gatorade led volume growth
for non-carbonated beverages such as juices and sports drinks in North
America. Company leaders said the North American beverage business
remains a terrific business and a tough business, as it competes
fiercely with companies such as Coca-Cola and Dr. Pepper Snapple.
PepsiCo
CEO Indra Nooyi said Wednesday that PepsiCo may have pushed volume too
much in years past rather than develop the identity and popularity of
its brands more. The company has worked to improve the popularity of
some of its brands such as Pepsi Max, which has no calories and has
greatly increased its sales.
PepsiCo will now turn to doing the
same for its other brands. Nooyi said the company is also trying to
think about creative ways to attract U.S. consumers who may still want
to buy PepsiCo’s drinks but have cut back on their spending.
The
company also said it will take further pricing increases in the fourth
quarter on select products and certain markets
"It’s not going to
take an awful lot to get this thing going again," said Edward Jones
analyst Jack Russo. "This quarter it was good to get some stabilization
and hit the number."
PepsiCo reaffirmed its guidance for the year,
but company leaders said they would wait until December to provide 2012
guidance to see how commodity prices, the economy and consumer response
to higher prices play out.
PepsiCo leaders also dispelled any
potential concern that it might go the way of Kraft Foods Inc. or Sara
Lee Corp., which have recently announced plans to split up their
businesses.
"I firmly believe that PepsiCo’s value is maximized as
one company," Nooyi told investors Wednesday. "It was created as an
integrated snack and beverage business and its success is tied to this
combination. This has been true in the past and will remain in the
future."
Shares of PepsiCo rose $2.01, more than 3 percent, to $62.96 in midday trading.
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AP Business Writer Michelle Chapman contributed to this report
Copyright 2011 The Associated Press.