PepsiCo’s Frito-Lay North America Segment Continues to Impress

PepsiCo (PEP) reported impressive first-quarter earnings results today. Its revenue rose 2.6% on a reported basis to $12.88 billion in the quarter.

Sirisha Bhogaraju - Author
By

Apr. 17 2019, Published 12:09 p.m. ET

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Snack food business is a key growth driver

PepsiCo (PEP) reported impressive first-quarter earnings results today. The company’s revenue rose 2.6% on a reported basis to $12.88 billion in the quarter. Its organic revenue growth was 5.2%. Its top line growth was driven by a 1% improvement in volumes and a 4.5% favorable pricing impact.

The company’s Frito-Lay North America segment continued its growth streak in the first quarter. The segment’s revenue rose 5.5% to $3.82 billion on a reported basis driven by higher volumes of Doritos, Ruffles, and variety packs and partially offset by lower volumes of Santitas. The segment also benefited from higher net pricing. The Frito-Lay North America segment is PepsiCo’s second-largest segment in terms of revenue, but it contributes the highest operating profit for the company.

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The segment’s operating profit increased 10.4% to $1.16 billion in the first quarter, reflecting revenue growth and productivity savings partially offset by a rise in certain operating costs.

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Performance of Beverages North America segment

An improvement in the revenue of the Beverages North America segment also boosted PepsiCo’s top line growth. The segment’s revenue rose 2.2% to $4.51 billion in the first quarter driven by higher effective net pricing and partially offset by lower volumes. The segment’s overall volumes fell 2% as a 1% rise in noncarbonated beverage volumes driven by its water portfolio was offset by a 4% fall in its carbonated soft drink volumes.

The segment’s operating profit increased just 0.3% to $389 million in the quarter driven by higher revenue and productivity savings. However, increased commodity costs and a rise in advertising and marketing expenses weighed on the segment’s operating profit.

Overall, PepsiCo’s adjusted EPS rose 1.0% to $0.97 in the first quarter, higher than analysts’ consensus estimate of $0.92.

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