PepsiCo reported its much anticipated Q3 earnings today and there were some important developments for the company.
CNBC reports that:
PepsiCo reported weaker-than-expected North American beverage sales, as the beverage giant struggled to toe the line between defending its core brands against spending to promote its newer ones. Pepsi also blamed declining store traffic and a colder summer decreasing demand for its historically strong performing Gatorade drinks
With the drive towards healthier alternatives to soft drinks becoming a more popular trend, PepsiCo went for a new focus on smaller brands and may have pushed to hard on that front:
“This summer, we directed too much of our media spending and shelf space to new low-calorie much smaller brands at the expense of our Pepsi and Mountain Dew trademarks,” said CEO Indra Nooyi.
This is an important turning point for PepsiCo. Reuters reports (via The New York Times) that their other brands such as Frito-Lay did much to supplement the weaker revenue, demonstrating that the core product of the company may be weakening.
According to CNBC:
The North American beverage business generated revenue of $5.33 billion in the quarter, versus $5.52 billion the year-earlier period. Its operating profit dropped 10 percent, to $817 million from $904 million.
This means that the business as a whole is trending towards a decline. While PepsiCo’s executive is saying that they can turn things around, there are many questions as to how?
With European health standards already quite high and North American ones on the rise, is there much room for expansion or customer retention? In addition, the emergence of direct delivery food from the likes of Whole Foods and such could also push people towards healthier alternatives even more in the coming years.
Investors should weigh the pros and cons of owning PepsiCo going forward. On one hand it represents some of the world’s most popular snack and beverage brands, but on the other they may not maintain that popularity in the future.
To read CNBC’s report on PepsiCo’s earnings, click here.
To read Reuters’ report on PepsiCo’s earnings, click here.
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