PepsiCo Swings to a Loss -- WSJ
By Cara Lombardo
This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (February 14, 2018).
PepsiCo Inc. quarterly sales were flat, hurt by falling demand in North America for its beverages, but the company said it had ramped up cost-cutting efforts to protect its bottom line.
The food and beverage giant swung to a quarterly loss, weighed down by charges stemming from the U.S. tax overhaul and its restructuring plan. PepsiCo said Tuesday it would eliminate less than 1% of its 110,000 corporate jobs in the U.S. as part of a continuing multiyear cost-cutting program. It also plans to dole out $1,000 bonuses to the front-line workers who make, sell and deliver its products.
Revenue rose in all of PepsiCo's business segments except its North American beverages unit, its largest, on an organic basis. The measure excludes currency swings, acquisitions and divestments and adjusts for an extra week in the year-ago period.
The company, whose drinks include Gatorade, Tropicana and its namesake cola, reported revenue at its North American beverages unit of $5.9 billion. On an organic basis, sales fell 3% and volumes fell 2%. The segment's operating profit declined 23%.
PepsiCo Chief Executive Indra Nooyi told investors on an earnings call that its beverage business will take a couple of quarters to recover after battling a "confluence of factors" in 2017. That included shifting too much advertising spending to newer products such as the Lifewtr bottled water brand.
"In 2018, we have a strong marketing program and we're maniacally focused on the business," she said of the beverages unit.
Some analysts say PepsiCo has been making it worse for itself by keeping soda prices low or relying on discounts as it turns its attention back to its core brands such as Pepsi and Mountain Dew.
PepsiCo Chief Financial Officer Hugh Johnston said in an interview that isn't the company's strategy. "You'll see our pricing in 2018 be in line with competition," he said.
PepsiCo plans to launch a line of flavored seltzer waters called Bubly early this year, which Ms. Nooyi said on the earnings call the company should have done years ago given the fast-growing market for such drinks.
The company's food business continues to fare better than its drinks offerings. Revenue from its Frito-Lay snack business was $4.8 billion in the quarter. On an organic basis, the segment's revenue rose 5% and was flat in the company's Quaker Foods North America unit.
PepsiCo has since 2015 cut about $1 billion of costs a year by closing manufacturing facilities, investing in automation and cutting jobs. On Tuesday, the company said it was expanding its restructuring efforts, resulting in a $226 million charge in the fourth quarter. In addition to trimming corporate jobs, the company said it plans to hire 20,000 front-line workers, as it does annually. PepsiCo's global employment has been around 264,000.
Overall, the Purchase, N.Y. company's fourth-quarter revenue was flat from a year ago at $19.5 billion. Analysts had expected $19.4 billion. For 2018, the company said it expects revenue growth in line with 2017 when organic revenues rose 2.3%.
PepsiCo posted a $710 million loss, as it recorded a $2.5 billion provisional net tax expense tied to the new U.S. tax law. The company said it expects its core effective tax rate to be in the "low 20s" in 2018, compared with 23.3% in 2017.
Excluding one-time items such as the tax adjustments, the company earned $1.31 a share in the fourth quarter, up from $1.20 a share in the year-earlier period. Analysts had expected adjusted earnings per share of $1.30.
PepsiCo shares fell 0.8% in early trading.
Write to Cara Lombardo at email@example.com
(END) Dow Jones Newswires
February 14, 2018 02:47 ET (07:47 GMT)Copyright (c) 2018 Dow Jones & Company, Inc.