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PepsiCo’s North America Beverages: What Went Wrong in 3Q17?

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Oct. 9 2017, Updated 10:07 a.m. ET

Dismal performance

PepsiCo’s (PEP) North America Beverages segment is its largest segment based on revenue. The segment’s weak numbers impacted PepsiCo’s overall revenue growth in fiscal 3Q17.[1. Fiscal 3Q17 ended on September 9, 2017.]

Revenue for the segment fell 3.4% to $5.3 billion in the quarter. Lower volumes offset the impact of higher pricing and acquisitions.

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Weak volumes

The overall volumes of PepsiCo’s North America Beverages segment fell 5.5% in fiscal 3Q17 as both carbonated soft drink volumes and noncarbonated beverage volumes fell.

The segment’s noncarbonated beverages, which generated strong volume growth in the first half of fiscal 2017, fell 6.0% in fiscal 3Q17, mainly due to lower volumes of Gatorade, the popular sports drink brand. Unfavorable weather conditions and a slowdown in the convenience-store channel impacted Gatorade’s volumes.

Disappointing soda volumes

PepsiCo’s North America Beverages segment also experienced a 5.0% fall in its carbonated soft drink volumes in the third quarter. In the fiscal 3Q17 conference call, PepsiCo’s CEO (chief executive officer) Indra Nooyi said the company assigned a significant amount of its media spending and shelf space to new low-calorie, smaller brands at the expense of its popular Pepsi and Mountain Dew brands. The company has been focusing on healthier beverage options to cater to changing consumer tastes.

Nooyi added that the segment’s revenue is expected to recover in the coming quarters. PepsiCo plans to increase its marketing expenditure on the Pepsi and Mountain Dew brands.

Next, let’s look at the performance of PepsiCo’s other segments.

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