Health Leads the Way in PepsiCo Q4 Growth

If eating healthy is important for a growing child, selling healthy products is important for a growing company.

Pepsi CEO Indra Nooyi

Pepsi CEO Indra Nooyi

PepsiCo CEO Indra Nooyi announced that the company’s low- and reduced-calorie beverages were among its top and fastest-growing products in its 2016 Q4 and year-end report to investors on Wednesday. Spurred by an initiative to create and market healthier products, net revenue from new products has averaged more than $5 billion since 2013.

“Our R&D capability investments have led to the creation of new products in the short term and the development of new platforms, ingredients, and packaging with longer term potential for breakthrough benefits such as sugar, calorie, fat, and sodium reduction, and more sustainable packaging alternatives,” Nooyi said.

Among the better-for-you products released in 2016 include refined formulas for international brands, including 7UP (PepsiCo owns the rights to the brand outside of the U.S) and a lower-sugar variety for Mirinda that rolled out in more than 80 markets. Domestically, the company touted the launch of a line of probiotic-infused Tropicana juices, and Naked’s Pressed line of cold-pressed juices. Meanwhile, Naked, Nooyi said, is “on its way to be [PepsiCo’s] next billion-dollar brand.”

The company also highlighted the recent launch of LIFEWTR, a premium water brand designed to compete with Coca-Cola-owned SmartWater, and its November acquisition of probiotic beverage and kombucha brand KeVita.

The additions to its beverage portfolio come as sales of PepsiCo’s flagship cola brand continue to decline. Pepsi cola only accounted for 12 percent of net revenue in 2016 while “guilt-free” products, including snacks, diet beverages, water, and all other beverages with fewer than 70 calories per 12 oz., made up 45 percent of net revenue.

“When it comes to transforming our portfolio we are making considerable progress,” Nooyi said.

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Overall, PepsiCo saw 3.7 percent organic revenue growth for 2016 and anticipates at least 3 percent growth for 2017. Core earnings per share was reported at $4.85 for 2016. However, its share price dropped by nearly two points after the 8 a.m. ET investor call Wednesday. The company predicted 2017 earnings to be $5.09 per share, falling short of analyst expectations of $5.16. By the close of the market Wednesday stocks rebounded to around where the day began, hovering just below $107.

As seen with other major beverage companies, geopolitical volatility made an impact on PepsiCo’s overall earnings and predictions, particularly impacted by turmoil in Venezuela and demonetization in India. Devaluation of many major international currencies relative to the U.S. dollar, including the Mexican peso and the pound, is expected to be a headwind for revenue and core EPS going forward. Despite international woes, the company’s North American sales remain strong.