Pepsi's Results Gets Boost From Snacks, Sugar-Free Drinks -- Update

By Jennifer Maloney and Dave Sebastian 

Strong sales of salty snacks lifted PepsiCo Inc.'s sales for the fourth quarter, as sugar-free versions of Pepsi and Gatorade are helping turn around the company's challenged North America beverage business.

PepsiCo is hoping a new drink called Mountain Dew Zero Sugar will revive sales of that brand, which has been flagging for years. The new soda, featured in a Super Bowl ad this month, tastes closer to the original drink than Diet Mountain Dew, Chief Financial Officer Hugh Johnston said in an interview.

"Mountain Dew consumers, like everyone else, at some point you typically see...they're going to shift over to a low- or no-sugar product," he said.

Sales volume was flat in the quarter for the company's North America beverage business unit, though revenue grew 4% -- its highest quarterly growth rate since 2015, Mr. Johnston said.

In the Frito-Lay North America division, sales rose 3%, driven by growth of snacks such as Doritos, Cheetos and Lays potato chips. Flamin' Hot flavors of those brands performed well in the quarter, as did a potato-chip snack called Poppables, Mr. Johnston said.

The company last year increased advertising and marketing spending by 13%, throwing support behind its struggling core brands. That investment has paid off, Mr. Johnston said. He predicted that Gatorade Zero "in a couple of years" would reach a billion dollars in annual sales.

The beverage-and-snacks giant this year plans to introduce a caffeinated version of Bubly, its flavored seltzer brand, following the announcement of a similar product coming from rival Coca-Cola Co. And in April, PepsiCo plans a limited U.S. release of a drink called Pepsi Café that combines cola and coffee. Coca-Cola has been rolling out a coffee version of its namesake cola overseas.

The company's Quaker Foods North America unit, which sells the Quaker Oats, Rice-A-Roni and Aunt Jemima brands, is also improving, though oatmeal had only "an okay year," Mr. Johnston said. The company is working on improving sales execution for oatmeal and will look to launch new oatmeal products or flavors, he said.

PepsiCo's sales rose 5.7% to $20.64 billion for the quarter ended Dec. 28, 2019, from the prior year. The company said its organic revenue grew 4.3% for the latest period and said it anticipates the metric, which strips out the effect of currency swings and acquisitions, to grow 4% in 2020.

The company also said it has increased its annual dividend to $4.09 a share from $3.82 a share, payable in June.

Net income fell to $1.77 billion, or $1.26 a share, from $6.85 billion, or $4.83 a share, a year earlier. The company booked $4.93 billion in income-tax benefits in the same period last year.

Adjusted earnings were $1.45 a share, ahead of the $1.44 a share analysts were looking for. The company expects adjusted per-share earnings to grow 7% in 2020.

Write to Jennifer Maloney at [e-mail] and Dave Sebastian at [e-mail]

(END) Dow Jones Newswires

February 13, 2020 09:38 ET (14:38 GMT)

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