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What Drove PepsiCo’s Revenue Growth in Fiscal Q2 2018

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Revenue beats expectations

PepsiCo (PEP) generated revenue of $16.1 billion in the second quarter of fiscal 2018, which ended on June 16. The company’s revenue exceeded analysts’ expectation of $16.0 billion and grew 2.4% YoY (year-over-year). In comparison, its revenue grew 2.0% YoY in the second quarter of fiscal 2017 and 4.3% YoY in the first quarter of fiscal 2018.

The company’s Frito-Lay North America division and its developing and emerging market business were key revenue growth drivers in the second fiscal quarter. Foreign currency movements boosted the quarter’s revenue growth by one percentage point. PepsiCo’s 2.6% organic revenue growth (which excludes the effects of acquisitions, divestitures, and structural headwinds) in the second fiscal quarter was driven by increased pricing.

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Performance of PepsiCo’s North American business

In the North American market, PepsiCo’s snack food business continued to outshine its beverage business. In the second fiscal quarter, Frito-Lay North America revenue grew 4.3% to $3.8 billion, driven by higher volumes and increased pricing. The company’s Doritos volumes grew by mid-single digits and Ruffles and variety pack volumes increased by high single digits. However, Lay’s volumes fell by low single digits.

PepsiCo’s North America Beverages revenue fell ~1.0% to $5.2 billion as higher pricing was more than offset by lower soda volumes. The segment’s organic revenue fell 1.0% in the second fiscal quarter, in comparison to 2.0% in the first fiscal quarter. PepsiCo is investing significantly in its marketing efforts to boost its beverage sales, and aims to increase its beverage sales through innovation. Recent launches include Bubly flavored sparkling water and Gatorade Zero.

PepsiCo’s Quaker Foods North America revenue fell 4.7% to $527 million due to pricing, mix, and lower volumes. The segment saw lower volumes in the ready-to-eat cereals, Gamesa, and bar categories. We’ll discuss PepsiCo’s international operations in the next part of this series.

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