PepsiCo (NASDAQ: PEP) on Tuesday delivered better-than-expected third-quarter earnings that showed signs of growing consumer demand for its teas, Gatorade, namesake cola and other beverages in North America.
The 16% surge in profits was a victory for Indra Nooyi on her last day as CEO, after years of facing pressure to sell or spin the company's beverage business as its growth has lagged behind that of its Frito Lay, Tostitos, Lays chips and other packaged snacks.
While its snacks continue to command presence and sales in a crowded market, its beverages have grappled with slowing carbonated sales and competition from new upstart rivals. Nooyi, though, has said she believes the company is stronger with both product lines in its portfolio.
To revive the business, PepsiCo has picked three of its largest beverage brands, Gatorade, Pepsi and Mountain Dew, to throw its marketing dollars behind. Those efforts seem to have taken hold, with its North American beverage business posting organic growth of 2.5%, stripping out the impact of acquisitions and other variables. Last quarter, it was down 1.5%
Still, the growth in beverage sales came at a cost for PepsiCo. Operating profit for its North American beverage business fell 11%, due to increased marketing expenses as well as rising transportation and commodity costs.
To cover its higher expenses, PepsiCo started raising beverage prices in September, and he results of those bumps will therefore be reflected in the next quarter.
Shares in PepsiCo fell $1.78, or 1.6%, to $108.43.
