Sector News

PepsiCo sets goal to become ‘faster, stronger and better’

February 19, 2019
Food & Drink

Since taking the helm in October 2018, Ramon L. Laguarta, chairman, president and chief executive officer of PepsiCo, Inc., has spent the past four months connecting with consumers and engaging in “no-holds-barred debates” with senior leadership with the sole goal of focusing on opportunities to make the Purchase-based food and beverage company “faster, stronger and better.”

What has arisen from the process, he said, is a clear set of “go-forward priorities.”

Mr. Laguarta said the first set of priorities center on becoming faster, specifically as it relates to accelerating the company’s rate of organic revenue growth. He said PepsiCo considers top-line acceleration as the single biggest opportunity to create more shareholder value.

“To achieve accelerated top-line growth, we intend to strengthen and broaden our product portfolio packaging formats to win locally in convenient foods and beverages,” Mr. Laguarta told analysts during a Feb. 15 conference call. “And this means growing our core businesses as we continue to evolve our product portfolio and sharpening our focus on key geographies.

“Across snacks and beverages, we’ll invest to capture a greater share of consumption occasions, from indulgent to functional, social to individual, value to premium, and across dayparts from morning to night. We plan to do this by continuing to grow our core brands, which include 22 billion-dollar brands, and building and/or acquiring new brands to cover new demand spaces, as we have recently done with bubly, Lifewtr … or Bare.”

Within snacks, Mr. Laguarta said PepsiCo intends to further capitalize on the consumer trends of convenience and on-the-go in locally relevant ways. Potential ways the company may tap into these trends include convenient mini meals, local street foods and local recipes.

PepsiCo also plans to rapidly scale its “beyond the bottle” initiative to offer consumers even greater variety and choice in beverage formats.

The second set of priorities relates to becoming stronger, Mr. Laguarta said.

“This involves becoming more capable, leaner, more agile and less bureaucratic,” he explained. “In doing so, we will drive down cost, and that enables us to plow the savings back into the business to develop scale and sharpen core capabilities that drive even greater efficiency and effectiveness creating a virtuous cycle.

“Our productivity programs will be guided by a set of universally applied principles, namely: achieving local affordability; simplifying and standardizing processes; collaborating across functions rather than optimizing within functions to achieve lowest-cost end-to-end processes; relentlessly automating and merging the best of our optimized business models with the best new thinking and technologies.”

The third and final priority is centered on being a better company, Mr. Laguarta said. Guided by its Performance with Purpose initiative, Mr. Laguarta said PepsiCo will sharpen its focus on advancing sustainability.

Mr. Laguarta’s comments were presented alongside full-year financial results for the company. Net income attributable to PepsiCo in the year ended Dec. 29, 2018, was $12,515 million, equal to $8.78 per share on the common stock, up 158% from $4,857 million, or $3.38 per share, in the previous fiscal year. Net revenue totaled $64,661 million, up 2% from $63,525 million.

For the fourth quarter, PepsiCo posted income of $6,854 million, or $4.83 per share, which compared with a loss of $710 million in the same period a year ago. Results in fiscal 2017 were negatively affected by a provisional net tax expense of $2.5 billion associated with the recently enacted Tax Cuts and Jobs Act. Net revenue of $19,524 million was relatively flat from the prior-year period.

Operating profit within the Frito-Lay North America unit rose 4.5% to $5,008 million in fiscal 2018, up from $4,793 million in fiscal 2017. Revenues increased 3.5% to $16,346 million from $15,798 million.

“Frito-Lay in North America, our largest sector by profit, is an extremely strong businesses that generates consistently attractive top-line growth and has industry-leading margins and returns on invested capital,” Mr. Laguarta said. “The core of Fritos business remains very strong and growing. Over the years, Frito has successfully adopted its portfolio to address new demand spaces, mainly in more permissible and premium snacking. We’ve added new brands and product lines to capitalize on those opportunities, with products like Simply, SunChips, Smartfood, Off the Eaten Path and Imagine. And we expect this approach will enable Frito to continue to compete very effectively across the spectrum of the snacks category.

“Furthermore, we see more runway to continue to source volume from other micro snacks occasions in ways that play to Frito’s strength.

“Operationally, Frito runs extremely efficient and highly optimized supply chain and go-to-market systems. However, capacity utilization is very high on average, and there are pockets where capacity is overstretched. We believe with added capacity, Frito will be even better positioned to capture new growth opportunities.”

Operating profit within Quaker Foods North America was virtually flat in fiscal 2018, easing to $637 million from $640 million, while revenues slipped 1.5% to $2,465 million from $2,503 million.

“We love our Quaker business,” Mr. Laguarta said. “I think it complements our portfolio, and it makes us strong in a daypart where we’re weaker otherwise. Now we need to be better at exploiting some of the opportunities of that brand internationally.”

He said there is a “huge opportunity” for PepsiCo to play up Quaker in the higher-value, breakfast-on-the-go eating occasion.

“You’re going to see us innovating in that space,” he said.

In the company’s North America Beverages unit, operating profit totaled $2,276 million, down 16% from $2,700 million in fiscal 2017. Revenues, meanwhile, increased 1% to $21,072 million from $20,936 million.

By Eric Schroeder

Source: Food Business News

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