Stoking up the ‘innovation engine’: PepsiCo fired up for 2015 despite global challenges

2015 marks 50 years since PepsiCo and Frito-Lay came together in 1965, and Nooyi says company’s FY2014 results (covering the period to December 27 2014) show the "strength of [an] integrated food and beverage product portfolio". She also credits successful innovation and marketplace execution. Steady net revenue Like Coca-Cola earlier this week, the company’s results have exceeded analyst expectations. PepsiCo’s net revenue for the quarter was down 1%, from $20.12bn in the quarter ending December 28 2013 to $19.95bn in the quarter ending December 27 2014. Net revenue for the year, however, remained steady: $66.42bn at the end of 2013 compared to $66.68bn in 2014. Organic revenue grew 5% in the fourth quarter and 4% across the full year. PepsiCo expects to return up to $9bn to shareholders this year in dividends and share repurchases. In the earnings call yesterday, Nooyi said the company had performed well in a challenging environment. This was thanks to the strength of the brand and product portfolios, and geographical diversity of operations. “So while certain markets were hit with political disruptions, economic downturns or significant currency devaluation, other markets in our portfolio not experiencing these issues were able to offset their impact to deliver overall strong results,” she said. PepsiCo Americas Beverages: 'Terrific fourth quarter' PepsiCo Americas Beverages – which covers all of the North American and Latin American beverage businesses – had a ‘terrific fourth quarter’ with 3% organic revenue growth and 11% core constant currency operating profit growth, said Nooyi. Over the last quarter it saw a 4% increase in non-carbonated beverage volume in North America, accompanied by a 2% decrease in carbonated soft drinks. In Latin America, organic beverage volume was up by 3%. “We have seen the business gain momentum beyond the efforts we’ve been making in marketing, innovation and execution,” Nooyi said. “And this has resulted in not only improved financial results, but better marketplace performance too, especially in our largest market, the United States. “Clearly our Latin American beverage business has had its challenges with the Mexico tax and deteriorating macros in Venezuela. Despite these challenges, our Latin American beverage business was a positive contributor to PepsiCo Americas Beverages’ overall organic top-line and core constant currency bottom-line results.” Could Europe prove to be a headache? The majority of PepsiCo’s European business is located in Eastern Europe and Russia in particular – which has been a difficult environment to operate in. Reported net revenue was down 10% in the latest quarter, attributed to an unfavorable foreign exchange translation impact. Core constant currency operating profit decreased 5% in the latest quarter, but grew 4% for the full year. “Clearly the currency picture and macros in Russia have made operations more challenging,” Nooyi said. “While the Russian consumer has been quite resilient - at least for our business - the currency situations led to significant inflation because of the transaction forex [foreign exchange] on the materials we source from outside of Russia, resulting in significant input cost inflation. “Despite these significant headwinds, Europe generated full year gains in volume, organic revenue and core constant currency operating profit.” Innovation Over the last two years, innovation as a percentage of total net revenue rose by 150 basis points (1.5%) and currently stands at 9%, Nooyi said. “We continue to strengthen our innovation engine. We have built a robust and sustainable innovation pipeline, perhaps the strongest in our history. “For example, to meet the growing demand for nutritious products we introduced Naked Juice's Kale Blazer and Gatorade’s new Whey Protein Bars. “We bolstered our food service business with the introduction of Pepsi Spire fountain equipment in over 30 markets, giving our customers a choice of flexible and cost-effective equipment and allowing our consumers to create more than 100,000 customized beverages with just the touch of a screen. “And as a testament to the durability of our innovation, a number of our recent product introductions like Tostitos Cantina [Frito-Lay tortilla chips], Mountain Dew Kickstart and Pure Leaf [iced tea] generated double-digit estimated annual retail sales growth in 2014 after achieving over a $100m in their launch year.”

Stoking up the ‘innovation engine’: PepsiCo fired up for 2015 despite global challenges

PepsiCo has met or exceeded its 2014 financial targets, and CEO Indra Nooyi says the company’s innovation pipeline is possibly its strongest ever, forecasting resilience to a volatile global macro environment.

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