PepsiCo Uses Higher Prices to Grow -- WSJ

By Imani Moise and Jennifer Maloney Features Dow Jones Newswires

Battling weak consumer demand, company has eye out for when it can 'take pricing'

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This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (July 12, 2017).

PepsiCo Inc. said its second-quarter sales and earnings rose as the beverage and snack maker continued to offset weak demand in North America with higher prices.

The company also lifted its adjusted earnings-per-share outlook for the year to $5.13 from $5.09, as it anticipates less of an impact from foreign-exchange effects. However, the raised outlook was a penny lower than Wall Street's expectation. Pepsi shares fell less than 1% to $113.27 in midday trading.

The Purchase, N.Y., maker of Frito-Lay snacks, Gatorade and its namesake cola has been hurt as consumers spend more time at the perimeter of the supermarket browsing through produce and fresh meats and less time in the center aisles, where the company's packaged foods such as Rice-A-Roni and Aunt Jemima are found.

Still, the company has been able to achieve sales growth by raising the prices for its products. During a conference call, analysts raised concerns that the price increases could backfire, sending customers to competitors selling cheaper snacks and drinks.

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Pepsi Chief Executive Indra Nooyi said the company watches pricing "very, very carefully on a weekly basis. I think where the market is today, when we can take pricing, we should take the pricing."

Pepsi executives added that their strategy includes not just raising prices but shifting the company's portfolio to more premium products, such as its new snack, Lay's Poppables.

Sales in its Frito-Lay and North American beverage units increased 3% and 2%, respectively, on flat volume growth. One of Pepsi's newest products, its LIFEWTR bottled-water brand, generated $70 million in sales in its first five months, the company's chief executive, Indra Nooyi, said during the call, and is on track for $200 million a year in sales.

Sales slipped 1% in its Quaker Foods business, but volume held steady.

PepsiCo's beverage volumes declined 2% in the latest quarter while total food and snacks volume grew 2%, driven by gains in foreign markets.

In a nod to the growing importance of online sales, Ms. Nooyi said the company's e-commerce-related efforts include developing snack packaging that travels better and the cold delivery of beverages.

In all for the quarter ended in June, PepsiCo posted earnings of $2.11 billion, compared with $2.01 billion a year ago. Adjusted earnings per share of $1.50 handily topped the consensus estimate of $1.40 as the sale of PepsiCo's minority stake in Britvic PLC, the company that produces and sells Pepsi in the U.K., added 6 cents to its bottom line.

Revenue also beat views, jumping 2% to $15.71 billion compared with estimates of $15.6 billion.

Write to Imani Moise at imani.moise@wsj.com and Jennifer Maloney at jennifer.maloney@wsj.com

(END) Dow Jones Newswires

July 12, 2017 02:47 ET (06:47 GMT)