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PepsiCo’s Frito-Lay North America Segment Outperforms in 2Q15

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Frito-Lay North America segment strength

PepsiCo’s (PEP) Frito-Lay North America segment continued its growth streak in the second quarter of fiscal 2015, which ended June 13, 2015. The segment’s revenue rose 2% to $3.5 billion compared to 2Q14, mainly due to higher pricing.

The segment’s operating profit rose 7.5% in 2Q15, driven by planned cost reductions and lower commodity costs related mainly to cooking oil and packaging. The segment outperformed all other segments in the first half of fiscal 2015 and registered a 2.5% growth in revenue.

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Most profitable segment

Frito-Lay North America is PepsiCo’s most profitable segment. In 2Q15, the segment accounted for 21.7% of PepsiCo’s net revenue, contributing 33% of the total segment operating profit. The PepsiCo Americas Beverages segment, which accounts for 33.5% of the company’s net revenue, contributed 29.6% of the total operating profit for 2Q15. PepsiCo’s snack food business competes with large players like Mondelez International (MDLZ), which owns key brands like Ritz and Oreo.

PepsiCo’s snack food business is one of its key strengths. It provides a diversified product portfolio that peers Coca-Cola (KO), Dr Pepper Snapple (DPS), and Monster Beverage (MNST) lack.

Beverage companies make up ~20% of the portfolio holdings of the Consumer Staples Select Sector SPDR ETF (XLP). PepsiCo makes up ~0.8% of the portfolio holdings of the iShares Core S&P 500 (IVV).

2Q15 segment performance

The Frito-Lay North America segment and the PepsiCo Americas Beverage segment were the only segments that registered positive revenue growth in 2Q15. Growth for the Americas Beverages segment was 1.1%, driven by higher pricing.

Quaker Foods North America failed to impress in 2Q15, as revenue fell 3.2% due to unfavorable pricing, currency fluctuations, and a decline in volumes of certain lines like Müller Quaker Dairy products, bars, and grits.

Performance of PepsiCo’s international segments continued to be troubled by currency woes.

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