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February 9, 2012

US: PepsiCo to cut 8,700 jobs to “drive growth”

PepsiCo is to cut around 8,700 jobs as part of a wider strategy to cut costs and "drive growth" across the business.

PepsiCo is to cut around 8,700 jobs as part of a wider strategy to cut costs and “drive growth” across the business.

The programme, announced this morning (9 February), is expected to generate around US$1.5bn of incremental cost savings by 2014. The job cuts represents around 3% of the US food and drink giant’s global workforce.

The plans follow months of speculation about the future direction of PepsiCo. Analysts have agitated for the business to split in two to generate more value for the shareholders.

Instead, PepsiCo plans to increase spending on advertising, improve productivity and streamline its management.

The productivity savings are expected to span “every aspect” of PepsiCo’s business, involving the consolidation of manufacturing, warehouse and sales facilities, the implementation of “simplified organisation structures”, and “fewer layers of management”.

“As we implement our strategic priorities in 2012, we’ve had to make some tough decisions,” said PepsiCo CFO Hugh Johnston. “As a result, 2012 will be a year of transition, one in which we will make the right investments to position PepsiCo properly to achieve long-term high-single digit core constant currency EPS growth.”

In addition to the cuts, PepsiCo has said it plans to increase advertising and marketing spend on its global brands by $500m to $600m this year, with particular focus on North America. The snacks and beverage giant said it expects to “maintain or increase” that rate of support as a percentage of revenues, going forward.

This morning, PepsiCo also released its earnings results, revealing a 2% increase in full-year net profit, boosted by “successful pricing and productivity programmes” during the year.

Net earnings amounted to US$6.46bn, while operating profit climbed 16% to $9.63bn. Net sales increased 15% to $66.5bn.

Full-year worldwide snacks volume increased 2.5% on an organic basis, reflecting “broad-based gains” in the portfolio.

In the fourth quarter, net profit amounted to $1.4bn, a 3% increase on the prior-year period, while operating profit edged up 1% to reach $2.25bn. Sales in the period climbed 11% to reach $20.16bn.

In the full year, revenues in PepsiCo’s Frito-Lay North America division grew 4%, reflecting volume growth of 1%, “effective net pricing, product innovation and marketplace execution”.

PepsiCo said its Latin America Foods unit posted full-year volume growth of 5% and strong price realisation led to double-digit net revenue and operating profit growth. 

The company is targeting high single-digit earnings growth for 2013 and beyond, after a transition year in 2012, in which it expects earnings to fall 5%.

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