PepsiCo's changes don't go far enough

The beverage maker continues to lag Coca-Cola.

By Jonathan Berr Feb 9, 2012 11:19AM

If there were a mercy rule in the cola wars, PepsiCo (PEP) would have triggered it long ago. Now the company is starting to fight back, though investors have to wonder whether the effort is too little too late.

PepsiCo on Thursday announced plans to cut about 8,700 jobs, which about 3% of its work force. At the same time, it will ratchet up marketing spending by as much as $600 million with a particular emphasis on North America.

 

The company also reported net income for the quarter of $1.42 billion, or 89 cents per share, a 4% increase from a year earlier. Revenue rose 11% to $20.2 billion. Excluding one-time items, profit was $1.15 a share. The results surpassed Wall Street's expectations, which were pretty low.
 
The company, though, has a tough road ahead. Indeed, PepsiCo CEO Indra Nooyi called 2012 "a transition year," which is a nice way of saying "Don't expect much." The company forecasts "mid-single-digit core constant currency net revenue growth" and "a decline in core constant currency EPS of approximately 5 percent from its fiscal 2011 core EPS of $4.40." Analysts forecast earnings this year of $4.55 per share on revenue of $68.32 billion.

According to the latest data from Beverage Digest, as of 2010 Coca-Cola (KO) had a market share of 42% to PepsiCo's 29.3%. During the same year, the volume of carbonated soft drinks fell for a sixth year in a row. PepsiCo's woes, though, don't stop there.

Shares are up 2.6% over the past five years, dramatically underperforming Coca-Cola shares, which surged more than 40% during the same period. Wall Street is running out of patience with PepsiCo.

The fourth-quarter results underscored many worrisome trends such as the weakness in North America. Net revenue in the region fell 1%, while volume fell 4%, or 1% on an organic basis, "reflecting the impact on consumer demand of pricing actions taken to offset commodity cost inflation," according to PepsiCo company veteran Al Carey, who was named last year as the head of the company's beverage business in North America.

The snacks business was again a standout. Lay's, Doritos, Cheetos, Ruffles, Tostitos and Fritos -- the division's six strongest brands -- each posted strong revenue growth in North America. Net revenue at Frito Lay North America rose 6% as sales growth more than offset the rise in commodity prices.

Quaker Foods North America was a laggard, posting a 2% revenue decline. The division's 11% growth in operating profit was fueled by an asset sale. Were PepsiCo being built today, it is highly unlikely that Quaker's cereal business, which emphasizes healthful eating, would be cobbled together with Frito Lay's snacks, which are what kids call a "sometimes food." Neither seems to make sense combined with a beverage business, unless the target market is college students. In the latest quarter, QFNA generated an operating profit of $239 million on revenue of $819 million. Frito Lay, on the other hand, posted a profit of $1.08 billion on revenue of $4.16 billion.

Unless Nooyi is prepared to make far more radical changes, PepsiCo will remain an also-ran in the cola wars.

Jonathan Berr is a freelance business writer. He owns shares of Coca-Cola. 

Tags: KOPEP
9Comments
Feb 9, 2012 11:30AM
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Indra needs to be one of the 8700 job cuts along with Mossimo.  Too many bad decsions and now others take the hit.  Pitifull!

Feb 9, 2012 2:54PM
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So US wages are becoming more competitive, Mega Corps are making them work much more, being more productive (i.e. Pepsi) and they are still firing them.

 

Even though they continue to see profit gains.

Feb 9, 2012 3:03PM
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Boy 0 boy with jobs being slashed like this . I will save the cash and drink water .
Feb 9, 2012 3:43PM
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More examples of how tax breaks for the wealthy create jobs.

 

Yup.  Jobs for the unemployment office to handle all of the layoffs.

 

Let's review.  Revenue is UP 11% from last year.  Net income is UP 4% from last year.

 

BUT, because the FAT CATS (PIGS) on Wall Street have RULED that Pepsico is not doing good enough, Pepsi decides they have to have MORE money and MORE greed and MORE corruption and MORE excessiveness to please the FAT PIGS. 

 

And 8700 workers have to suffer so the 1% can get richer.  I will GUARANTEE you that the bonuses and perks of the top PIGS at Pepsico will be unaffected, and possibly INCREASE because by cutting expenses (jobs) the net income will increase even more, so the CEO and his overpaid croonies will get bonuses.  Just like it happens at Bank of Unamerica, Cisco, Chase.... just about every huge corporation that is at WALL STREET's MERCY.

 

Feb 9, 2012 3:16PM
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Pepsico you just made my day.....It's back to coke.Greedy
Feb 9, 2012 4:18PM
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Anyone care to point out that Coke tastes better than Pepsi??!  You think that might just account for their smaller share of the cola market?!  What I find laughable about this whole article is Wall Street's "unhappiness" with a company that has more than $62 billion in revenue.  $62 billion!!  And somehow that's disappointing?! 
Feb 9, 2012 3:38PM
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MICIAHEL, How is this Obama fault its these greedy CEO idiot
Feb 9, 2012 4:57PM
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Why drink this sugar laden crap anyway...no wonder America is fat, diabetic, etc...
Feb 9, 2012 4:52PM
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CUT 8,700 JOBS THAT'S 3 % OF ITS WORK FORCE

MARKET SPENDING UP BY AS MUCH AS 600 MILLION

REPORTED INCOME FOR THE QT.@ 1.42  BILLION... OR .89 CENTS SHARE UP 4% FROM LAST YEAR.

SOUNDS LIKE TOTAL GREED MOVING IN. WITH THE CEO OF PEPSI...

AND WE ALL KNOW WHAT HAPPENS WITH GREED (WALL STREET) AND CEOs IT JUST DISTROYS.PLAIN AND SIMPLE.

 

 

 

 

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