PepsiCo: Beverages, Frito Lay Fuel Q1 Revenue Gains

PepsiCo reported net revenue growth of 6.8% in Q1 of this year, a figure that “reflects the benefits of (its) highly strategic acquisition activity” and “continued investment in our brands, manufacturing capacity, supply chain and go-to-market systems,” the company reported this morning.

Pepsi’s top-line net revenue includes a 5% benefit from acquisitions and a half-percentage-point impact from unfavorable foreign exchange rates. Organic revenue growth was 2.4% during the quarter. Operating profit increased 7%, a result of “ongoing efforts to tightly control costs.”

“We are pleased with our result for the first quarter as we successfully overcame challenges related to difficult year-over-year comparisons, uneven recoveries across many of our international markets and weather-related business disruptions in the U.S.,” said Ramon Laguarta, Pepsi’s CEO and chairman, in a press release.

“Our results are indicative of the strength and resilience of our highly dedicated employees, diversified portfolio, agile supply chain and go-to-market systems and strong marketplace execution. And we remain fully committed to executing against our key set of priorities to become a Faster, Stronger and Better organization and win in the marketplace. Following our first quarter results, we have greater confidence in delivering on our financial guidance for the full year.”

The solid performance of Pepsi Beverages North America — organic revenue was up 2% — arrived as the company gained share in several categories, including CSDs, teas, juices and sparkling water. Bubly and Starbucks each delivered double-digit net revenue growth, followed by high single-digit gains for Mountain Dew and mid single-digit increases for Gatorade and Pepsi. PBNA was ranked as the top contributor to growth in the LRB category and delivered “strong improvement in core operating margin,” according to the company.

During the Q&A portion of the call, Laguarta noted that margins have been improving in PBNA for several quarters, which he credited to better portfolio mix, price realization and cost management through P&L. He said that the return on investment from advertising and marketing has also trended upwards, and that Pepsi may look to “optimize” that in the coming years.

“We continue to get much better at measuring the ROI of different types of marketing we can do with different channels and content,” he said. “Our strategic position is to continue to invest as a long-term driver of brand growth.”

Elsewhere, Quaker Foods, which includes Gatorade, was up 1% in organic revenue; the company cited “very difficult prior-year comparisons” due to a surge in consumer demand last March. The business has delivered 8% growth over the two-year period, and is now seeking to “capture additional opportunities for growth in lite snacks and side dishes.”

The company’s global snacks and food business grew organic revenue by mid-single digits. Frito-Lay grew organic revenue by 3% (10% over the two-year period), as new “consumer-centric” innovations from brands like Doritos and Cheetos entered the market. Ruffles, Lay’s and Tositos each posted single-digit growth, while Funyuns and Off the Eaten Path reported double-digit increases in net revenue. The division’s core operating margin fell in Q1.

The company’s guidance for the full year 2021 calls for a mid-single-digit increase in organic revenue. Share repurchases ($106 million) have been completed and the corporation does not expect to repurchase any additional shares for the remainder of the year, according to the report.

Over the first months of 2021, Pepsi has been active in shaping its beverage portfolio to align with its long-term growth targets. Energy has a central position within those plans: in their commentary, Laguarta and Pepsi vice chairman and CFO Hugh Johnston noted that new entries for MTN DEW (the “morning energy” drink Rise, released last month with a splashy endorsement from NBA star LeBron James) and “ongoing efforts to revitalize our Rockstar products” have the company feeling “optimistic about our ability to increase our presence and improve our performance in the energy category.” The company’s co-branded Starbucks coffee energy drinks have also grown by double-digits, he said.

Pepsi also remains the exclusive distribution partner for Bang Energy through the end of its contract in 2022, as confirmed by a Florida district court in March. Laguarta said the business had “stabilized” and was “growing nicely.”

Yet the company has also looked to widen its presence across various categories and consumer need states. Since January, Pepsi has introduced new innovations in carbonated beverages (a new caffeinated version of Bubly and the first new flavor for its trademark soda line in five years), revamped its plant-based protein line Evolve, launched a line of canned mixer products and debuted Frutly, a fruit-infused water drink aimed at Gen Z consumers. Outside of its own portfolio, the company also announced a pilot program for refrigerated product distribution with Chobani in March.

One of those new areas includes hemp-infused beverages: last week, Pepsi introduced Rockstar Energy + Hemp exclusively in Germany.

“The test in Germany is very specific for that country,” said Laguarta. “I wouldn’t take any broader conclusions (from that).”