PepsiCo Sees Beverage Sales Slip in Q3

Beverage sales for PepsiCo slumped this summer, CEO Indra Nooyi reported during the company’s quarterly earnings call Wednesday.

Pinning the decline on poor weather conditions across North America leading to fewer C-store sales, Nooyi sought to reassure investors “that the issues are temporary” and action has been taken to improve sales in the new quarter.

PepsiCo underperformed the industry in carbonated beverages, Nooyi said, as well as seeing a dip in Gatorade sales following two years of “terrific Q3 growth.” North American beverage sales saw a 6 percent decline in volume compared to the same period last year.

“This summer, we directed too much of our media spending and shelf space to new low-calorie, much smaller brands at the expense of our Pepsi and Mountain Dew trademarks while our plans for the summer were consistent with our continued delivered the strategy to transform our beverage portfolio,” Nooyi said on the call. “Clearly, we redirected some big brands space to these new products as opposed to focusing on new incremental space.”

However, responding to a question on the call, Nooyi estimated that weather conditions were 70 percent to blame for the limited growth in Q3, versus 30 percent being issues that PepsiCo could have controlled. Gatorade in particular saw an “outsized impact” due to rain, she said. As for CSDs, the company’s focus on promoting low-calorie beverages hurt soda sales.

Nooyi noted new innovation, such as low and no-calorie products, was coming to some of PepsiCo’s “biggest trademarks,” including Pepsi and Mountain Dew. The new products are set to launch in early 2018. She added later that the company is focused on securing new shelf space for the products, particularly in the convenience channel, and will work to “protect the hell” out of its placements.

“[If] I looked at this quarter, the only two [issues] that we need to focus on is getting Gatorade back to growth, which we’re already beginning to see, and tweaking our advertising spending against Pepsi and Dew,” Nooyi said.

Thanks to cost savings and a lower-than-average tax rate, PepsiCo surpassed analysts expectations for its Q3 earnings per share (EPS). But, some analysts were not thrilled with the final outcome. Bonnie Herzog of Wells Fargo Securities noted that overall net revenue of $16.2 billion (representing 1.7 percent organic growth) was below expectations.

“We believe [PepsiCo] will likely deliver its revised FY17 EPS guidance based on productivity savings/cost cutting, but see few positive catalysts that could drive the stock meaningfully higher in the near-term,” Herzog wrote.

This quarter follows a more favorable Q2 report, which saw 3 percent global organic revenue growth. Overall beverage sales were also stronger, in part bolstered by the launch of LIFEWTR in Q1 and a solid performance of Pepsi Zero Sugar. During the company’s earnings call in July, Nooyi noted there would be “strong activation” for Pepsi Fire and DEW-S-A during the summer.

Despite the report, PepsiCo’s stock value saw little movement Wednesday, closing the day with a 0.18 percent increase.