PepsiCo’s North American beverage business felt the brunt of the COVID-19 pandemic in Q2, the company announced today in its quarterly earnings report, as organic revenue fell 7% due to declines in the convenience, gas and food service channels, offsetting positive growth in grocery, mass and dollar stores.
Overall net revenue for the conglomerate was down 3.1% in the second quarter to $15.95 billion, but up 1.7% year-to-date. Organic revenue performance declined 0.3% in the quarter while remaining up 3.3% year-to-date. Core operating profit fell 15% to $2.32 billion, in part due to increased spend on employee safety precautions and sanitation initiatives surrounding the pandemic.
However, PepsiCo CEO Ramon Laguarta noted during prerecorded remarks this morning that revenue management initiatives “enabled strong pricing gains across the business,” including in key categories such as carbonated soft drinks and sports drinks. Strong snack sales helped offset the declines in the beverage business.
As well, certain parts of the beverage business did report growth, including double digit net revenue increases for Pepsi Zero Sugar and Bubly and high single digit net revenue growth for its RTD coffee business.
On energy drinks, Laguarta said the integration of Rockstar Energy and Bang Energy into the PepsiCo system was nearly complete and will likely finish by the end of this month. He reiterated that the company plans to take a three-pronged approach to quickly growing its market share in the category by accelerating the performance of Rockstar, expanding distribution for Bang and continuing to promote and innovate within the MTN Dew brand.
“We have very strong growth and market share ambitions with respect to this highly profitable category and intend to use the depth and breadth of our portfolio and distribution capabilities to improve our execution and store presence,” Laguarta said.
During a Q&A call with investors and analysts, Laguarta noted that the company has received “very positive” feedback from retail partners ahead of the full integration of Rockstar and Bang, stating “I think the customers see us as a very good partner that can bring insight, that can bring activation to the brands, that can bring better store execution.” However, he said the process for disentangling Bang from the roughly 250-300 distributors carrying the brand “has been quite exhausting” for Pepsi Beverages North America CEO Kirk Tanner but added the team has “done a great job of integrating that brand.”
PepsiCo will also continue to explore better-for-you and functional beverage innovations this year, with Laguarta stating that the company is “moving quickly” to roll out immunity products, particularly in juice, where sales have grown significantly during the pandemic.
“We’re seeing that our consumers are looking for immunity more, our juice business is booming and we think that we can come up with other beverages and even snacks that go against that need,” he said.
Despite the challenges of the pandemic, Laguarta remained positive that sales will continue to improve throughout the rest of the year, noting gas and convenience sales began to rebound during the latter half of Q2, though food service has seen a slower recovery. The company offered no official guidance, citing uncertainty due to the changing environment.
PepsiCo’s stock price was up 0.33% to $134.91 per share at the close of market today.