Soft drinks and snacks giant PepsiCo continued its consistent delivery of solid double-digit earnings growth, with earnings per share for the Q1 2002 up 14% to 38 cents, on a comparable basis. On a reported basis, earnings per share for the quarter were US$0.36, also an increase of 14% over the prior year.
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Chairman and CEO Steve Reinemund said: “We’re pleased to have delivered our 10th consecutive quarter of double digit growth in operating profits. All our businesses contributed to our quality growth, led by strong top and bottom line results at our largest divisions, Frito-Lay North America and Pepsi-Cola North America, along with a very strong quarter from Gatorade.
“Our international results were also healthy, despite the impact of adverse global macroeconomic conditions. And all this was achieved while keeping the Quaker integration right on track. We’re off to a great start, and our innovation pipeline and promotional calendars are strong for the balance of the year.”
Summary of total PepsiCo results
Net revenues grew 5% to over US$5bn for the Q1, in spite of the impact of a difficult comparison with very strong revenue growth in the Q1 2001 and unfavorable foreign exchange rates. On a currency-neutral basis, net revenues rose 6%.
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By GlobalDataTotal division operating profits rose 12% to over US$1bn, and net income grew over 14% to US$681m for the quarter.
Frito-Lay North America (FLNA)
(in millions)
Q1 2002 Q1 2001 % Change
Net Revenues $1,901 $1,778 +7%
Operating Profit $471 $426 +11%
FLNA had an excellent Q1, with strong 6% pound growth. FLNA’s 7% revenue growth was driven by volume, and its almost 11% operating profit growth was driven by leverage from the increased volume and by the benefits of continuing productivity initiatives.
Solid performance in FLNA’s core product portfolio came from Tostitos, Cheetos, and dips, as well as strong sales of Multi-Packs, and the introduction of newly sized Quaker Chewy Bars into FLNA’s direct store delivery system. FLNA also benefited from its continuing innovation and successful promotions.
In the Q2 of 2002, FLNA will continue to roll out Go Snacks with three more flavors coming out at the end of the quarter. In addition, FLNA will introduce a new flavor of Lay’s Bistro Gourmet, and new pretzel products such as Rold Gold Braided Twists and Rold Gold Flavor Rush Pieces.
FLNA’s promotional calendar for the Q2 is also strong, tied in to the opening of the new movie, “Star Wars Episode II”.
Frito-Lay International (FLI)
(in millions)
Q1 2002 Q1 2001 % Change
Net Revenues $1,221 $1,175 +4%
Operating Profit $171 $151 +13%
FLI volume grew 6% in the Q1, led by excellent double-digit growth in Walkers in the UK and solid single-digit growth from both Sabritas and Gamesa in Mexico. This volume performance was particularly impressive as FLI faced an adverse global macro-economic environment, especially in Argentina and Turkey, as well as a difficult comparison with the highly successful Pokemon promotion of the Q1 2001.
FLI’s revenue growth was driven principally by volume, and on a currency-neutral basis was about 5.5%. FLI’s operating profit growth was driven by volume and productivity initiatives. Unlike revenues, net operating profits benefited from foreign exchange rates by about 3.5 percentage points due to the strength in the Mexican peso.
In the Q2 2002, FLI has a solid marketing calendar planned, which also includes promotional news such as sticker-in-the-bag promotions featuring local soccer stars, Lego Scratch Cards, and more Pokemon.
Quaker Foods North America
(in millions)
Q1 2002 Q1 2001 % Change
Net Revenues $303 $291 +4%
Operating Profit $99 $80 +25%
QFNA delivered an exceptional 25% increase in operating profits in the Q1, principally due to lower costs from synergy and productivity initiatives, as well as volume improvement.
Volume and revenue both increased 4%, driven principally by a longer reporting period for QFNA’s Canadian operations which moved from a two month calendar quarter in the Q1 2001 to three 4-week fiscal periods in the Q1 2002. This shift in timing added 3 of the 4 points of growth for the Q1, and will impact QFNA’s quarterly, but not its full year results.
Pepsi-Cola North America (PCNA)
(in millions)
Q1 2002 Q1 2001 % Change
Net Revenues $688 $644 +7%
Operating Profit $196 $171 +15%
PCNA had another strong quarter, which was particularly impressive given the comparison with PCNA’s strong performance in the Q1 2001. Concentrate shipments and equivalents (CSE) increased over 4%. The volume growth was driven primarily by recent innovation.
The 7% increase in revenues and 15% operating profit growth reflected higher effective net pricing and increased volume.
In the Q2, PCNA will continue to benefit from the innovation launched in the H2 of last year and the Q1 of this year, and will introduce several new products, including Lipton Brisk Lemonade, a new SoBe product called Mr. Green, and Starbucks Doubleshot espresso.
PCNA’s promotional calendar for the Q2 includes a tie in with the new “Men in Black II” movie, a Sierra Mist tie-in with the Survivor IV television series and a local “Take Home the Tickets” promotion giving away tickets for movie releases and Britney Spears concerts.
Gatorade/Tropicana North America (GTNA)
(in millions)
Q1 2002 Q1 2001 % Change
Net Revenues $695 $676 +3%
Operating Profit $105 $102 +3%
Total volume for Gatorade/Tropicana North America for the Q1 2002 increased 4%, reflecting very strong 20% volume growth for Gatorade, offset by continued softness in Tropicana’s volume, which declined by 2%. GTNA’s operating profit increase reflects the volume gains, as well as lower costs resulting from merger synergies, offset by increased advertising and marketing expenses in support of new products.
Gatorade’s strong performance was driven by new products and in the Q2, Gatorade plans to initiate the media support behind its new product lineup, continuing its successful “Is It In You” campaign.
Tropicana’s soft performance reflects the continued decline in the chilled juice category in the grocery channel, and weakness in Twister ambient juices. Initial results from the launch of GoJ, Tropicana’s new single serve bottle of Tropicana Pure Premium orange juice, are very promising.
In the Q2, Tropicana will launch a new “Healthy Kids” product, containing 100% Tropicana Pure Premium not-from-concentrate orange juice with the essential nutrition for growing kids – calcium and vitamins A, C and E. Also, Tropicana will initiate new advertising behind the Cleveland Clinic news of the blood pressure reduction benefits of Tropicana Pure Premium.
PepsiCo Beverages International (PBI)
(in millions)
Q1 2002 Q1 2001 % Change
Net Revenues $293 $298 -2%
Operating Profit $32 $29 +9%
PBI bottler case sales were up 4%, led by high single-digit growth in Mexico and double-digit growth in China, Russia, India, the UK and Egypt. The introduction of new products and line extensions of Pepsi and Mirinda contributed to the volume growth. In addition, PBI’s portfolio of non-carbonated beverages delivered double-digit growth. The volume growth rate was adversely impacted by declines relating to weak local macroeconomic conditions especially in Argentina.
Revenue and operating profit growth were both principally driven by increases in volume, offset by the adverse impact of unfavorable foreign exchange rates (primarily the Euro, Egyptian pound and Argentine peso) and poor macro-economic conditions in Argentina. On a currency-neutral basis, PBI’s revenue growth would have been a positive 2%, and operating profit growth would have been 20%.
