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Why PepsiCo’s North America Beverages Segment Failed to Impress

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Segment performance

PepsiCo’s (PEP) North America business failed to impress in fiscal 4Q17. On a reported basis, the revenue of Frito-Lay North America, Quaker Foods North America, and North America Beverages declined 1%, 5%, and 6%, respectively, in fiscal 4Q17. In contrast, the revenue of Latin America and Europe Sub-Saharan Africa rose 6% and 11%, respectively, in fiscal 4Q17. The revenue for Asia, the Middle East, and North Africa was flat on a year-over-year basis in 4Q17.

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Excluding the impact of structural items and foreign currency fluctuations, the fiscal 4Q17 organic revenue for Frito-Lay North America; Quaker Foods North America; Latin America; Europe Sub-Saharan Africa; and Asia, the Middle East, and North Africa rose 5%, 0%, 3%, 6%, and 6%, respectively. However, organic revenue for the North America Beverages segment fell 3% in fiscal 4Q17.

What affected North America Beverages?

PepsiCo’s North America Beverages segment continued to be impacted by weak volumes. On an organic basis, the segment’s volumes fell 2% in fiscal 4Q17.

Even for fiscal 2017, revenue for North America Beverages declined 2% on a reported as well as organic basis. On a reported basis, the volumes for the segment fell 3.5% due to a 5% decline in its carbonated soft drink volumes and a 1% decline in its noncarbonated beverage volumes.

The volumes of PepsiCo and rival Coca-Cola (KO) have been under pressure as consumers are increasingly shying away from sugary soda drinks that are said to cause health problems such as obesity.

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PepsiCo’s noncarbonated beverage volumes declined in fiscal 2017 as higher volumes of the company’s water portfolio and Lipton ready-to-drink teas were offset by mid-single-digit volume declines in Gatorade sports drinks as well as juice and juice drinks. Also, the 53rd additional week in 2016 resulted in an unfavorable comparison and adversely impacted the company’s 2017 volumes by 1.5 percentage points.

PepsiCo plans to improve the performance of its beverage business through innovation and marketing efforts. Its innovation efforts are particularly focused on healthier beverages with low or no sugar levels and the expansion of noncarbonated beverage offerings. It recently launched Bubly, a new sparkling water with no artificial flavors, no sweeteners, and no calories.

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