Drinks giant to continue to hold-off on M&A despite solid Q2 revenue performance
PepsiCo has increased its 2021 revenue forecast by 6% and core constant currency earnings per share (EPS) by 11% as Q2 revenue hit $19 billion.
The CPG behemoth reported a net income of $2.36 billion for the quarter, up 43% on the previous year.
PepsiCo’s North American beverage business (PBNA) boomed during the period, bringing in $6.2 billion in revenue and driving the company’s overall growth.
Its Frito-Lay North American snacks arm was the second highest earning business, with revenue for the quarter increasing 6.5% to $4.6 million.
Speaking to analysts during the group’s Q2 earnings call this week, PepsiCo CEO Ramon Laguarta said the results of the PBNA business were a consequence of work that had been done to improve the equity of the brands over the last three years.
“But the most important thing I think for our sales is that the business has been investing and it’s delivering as a consequence of that,” Laguarta said.
“We’re gaining share. I’m sure if you’ve looked at the share numbers for the business in the last few months, the business keeps gaining share and keeps getting more competitive,” he added.
Laguarta told analysts his biggest highlight from the results was the resilience of PepsiCo’s snack business.
“This year it’s growing by high single digits. That is extraordinary if you think about the shift in consumer behaviour and how our portfolio is able to adapt to more of an in-home consumption pattern or more of an away-from-home consumption pattern,” he added.
CFO Hugh Johnston said gross margin was down in the quarter due to lower gross margin acquisitions being integrated into the business.
On the new 2021 revenue forecast, Laguarta said the executive team was confident in the group’s marketplace performance.
“We’re counting on the resilience of our categories, but also where we’re aware of the ups and downs that might come in the coming months, especially as we move into the colder months in the Northern Hemisphere,” he said.
M&A sits on ice
Johnston confirmed the business would not commit to anymore M&A in the short-term, as financial constraints imposed earlier in the year would continue despite solid Q2 performance.
Reflecting on recently acquired businesses, Laguarta said the CytoSport business, which it acquired in April 2019, was thriving.
He said the snacks business arm was working on expanding distribution and building a brand for the recently purchased Better-For-You healthy snacks company it acquired in December 2019.
“That is an amazing performance,” Laguarta said.
“We knew that there was a space for that popping technology and for the PopCorners brands playing in the healthier space for snacking. The truth is that it will keep adding capacity, and the Frito team are really doing a fantastic work in terms of expanding distribution and building the brand.”
The chief executive said he expected D2C and ecommerce channels to remain strong in a post-Covid world.
He also noted a shift in consumer habits towards healthier food and drinks choices, with portion control a trend that would likely continue.
“Portion control, we’re seeing that as a strategy consumers are following and that’s giving us huge growth in our variety packs and multi-packs and that I think will continue as a trend we’re capturing,” Laguarta said.
“The other one is, as consumers move into healthier spaces in our categories, clearly non-sugar is growing very fast.
“I think we’re very well positioned from the R&D point of view and the innovation point of view on non-sugar and it’s the same for more permissible snacks where we, in the last few years, have been between acquisitions and development. We have a very good portfolio that is gaining share in that particular space,” he concluded.
A recent report by research firm Kantar said corporate brands had regained consumer trust during the Covid-19 pandemic as people turned to familiar products for comfort.
Pepsi and Lays were ranked in fifth and seventh place respectively in Kantar’s ‘Most Valuable Global Brands’ food and drinks rankings, while Tropicana and Gatorade sat at 16th and 20th place in the listing.
Date published: 14 July 2021