PepsiCo announced today in its Q1 earnings call that it has entered an exclusive U.S. distribution agreement with Bang Energy, the performance energy drink brand produced by Vital Pharmaceuticals, furthering the conglomerate’s goal of becoming a competitive player in the global energy drink market.
The announcement comes just over a month after the company announced a $3.85 billion acquisition of Rockstar Energy last month. Bang will be serviced through the Rockstar distribution network.
Speaking with investors and analysts during a phone call, PepsiCo chairman and CEO Ramon Laguarta said PepsiCo plans to target the energy consumer occasion through “multiple vectors,” including increased innovation on the Mountain Dew Game Fuel line and an expansion of its coffee business through its Starbucks distribution partnership. He noted the Rockstar acquisition has given PepsiCo “the opportunity to play in more energy spaces” and will invest in that brand’s portfolio to fuel growth. As well, Laguarta said Rockstar will serve to expand the company’s energy drink business globally in addition to the U.S. market.
Though there is not currently a path to ownership of Bang in the distribution partnership, the deal is expected to last for multiple years, CFO Hugh Johnston said. Johnston noted that unlike the company’s previous exclusive distribution agreement with Rockstar, there are no “meaningful restrictions” in the agreement that prevent PepsiCo from investing further in the energy category.
“Bang has been a beautiful addition to our portfolio in terms of a differentiated brand that has a lot of momentum in the U.S.,” Laguarta said. “I think our distribution muscle will give Bang an additional push and there’s clearly a lot of consumer positive reception to that brand.”
During the first quarter, PepsiCo beat analyst expectations with strong sales driven by COVID-related stockpiling of snacks, but the company pulled its 2020 fiscal year outlook, citing the market uncertainties caused by the global pandemic.
The company reported organic revenue growth of 7.9% in the quarter. Net sales were up 7.7% to a revenue of $13.88 billion. Growth was largely driven by PepsiCo’s food and snack business, with the Quaker Oats and Frito-Lay divisions both reporting 7% organic revenue growth.
Organic revenue for the North American beverage division was up 6%. The core Pepsi line increased revenue for the seventh consecutive quarter, Laguarta said, while Mountain Dew saw a return to growth. Non-carbonated beverages rose double digits “with broad based strength across nearly all brands.” However, profitability of the division was negatively impacted by product and channel mix shifts due to COVID-19.
Adjusted earnings per share rose 10% in the quarter, with a core EPS of $1.07. PepsiCo stock rose 1% during pre-market trading today.
Laguarta said that due to the changing nature of the crisis caused by the novel coronavirus, the company does not anticipate a “linear” re-opening of markets and is preparing to face headwinds going forward. However, he noted that PepsiCo does not expect a significant slowdown in sales even as the pandemic continues due to high consumption rates and product expiration dates requiring frequent repurchasing.
“With some exceptions we largely expect consumers to eventually return to previous habits as they slowly exit confinement and cautiously settle into a new normal,” he said.
To meet changing buying behavior, the company has invested more in its ecommerce business, he added, reallocating some funds to expand the online channel. As well, Laguarta said the company’s supply chain remains strong with no anticipated disruptions.
He added that the company is still exploring merger and acquisition opportunities as normal but currently has no plans to make additional acquisitions after its purchase of Rockstar.