PepsiCo pursues ‘Faster, Stronger, & Better’ framework to build on better-than-expected Q3

The CPG giant’s third-quarter revenue grew 5.3% to $18.09b – significantly beating analysts’ forecasts of $17.23b – thanks in large part to its North American beverage division, which reversed course in the quarter to climb 6% to $596b after declining 7% in the previous quarter.

Most of the previous decline was due to coronavirus-related restaurant and office closures and a dip in c-store sales while Americans were under lockdown. As some lockdown measures have eased and Americans have returned to work or embraced road trips as a safer travel option, CEO Ramon Laguarta said trends in the c-store and gas station channel “meaningfully improved versus the previous quarter.”​

This in turn helped drive “strong improvement”​ in the North American beverage business, where organic revenue increased 3% and operating profit climbed 12%, Laguarta said.

“Many of our large brands performed well with double-digit net revenue growth for bubly, Lipton and Starbucks, high-single digit growth for Gatorade, mid-single digit growth for Mountain Dew and Tropicana and low-single digit growth for Pepsi,”​ he said.

To help boost its namesake beverage, the company will continue to invest in Pepsi Zero Sugar, retail sales of which Laguarta said has grown by more than 30% year-to-date. The innovation likely is seeing results as more Americans continue to turn away from or try to reduce sugar consumption.

At the same time that Pepsi continues to innovate and renovate in the hard-hit carbonated soft drink space, it is benefiting in the “highly profitable” energy category from its acquisitions of Rockstar and distribution agreement with Bang, Laguarta said.

Overall, he said, he remains optimistic about the long-term potential of the North American beverage business and believes PepsiCo has “the right plans and portfolio in place to deliver sustainable growth and margin expansion over time.”​

At-home snacking remains strong despite ‘measured reopening’​

PepsiCo’s snack and food business also delivered “robust growth as at-home consumption trends have remained strong despite the measured reopening of economies and activities in certain areas since May,”​ Laguarta said.

The company’s Frito-Lay business’ organic revenue increased 6% and gained market share with double-digit growth from Tostitos, high-single digit growth from Cheetos and mid-single digit growth from Doritos and Ruffles, he explained.

Like the beverage segment, some of this growth came from improvements in the convenience and gas channels, but also from ecommerce, he added.

Quaker Foods also saw a 6% increase in organic revenue and improved household penetration rates in the quarter, bringing the business in line with what PepsiCo expected, Laguarta said. Within this segment, he called out high single-digit increase in pancake mixes and syrup sales and “good growth”​ from hot and ready-to-eat cereal.

Faster, Stronger and Better​

Even as PepsiCo’s North American beverage and snack business climbs, the company reaffirmed its commitment to its three-prong strategic framework to became “an even Faster, Stronger and Better organization,”​ Laguarta said.

By “faster,”​ he explained that PepsiCo strives to “win in the marketplace and improve market share by being mor consumer-centric and investing in both large, established brands and small, emerging brands to accelerate our growth.”​

This will include investing in manufacturing capacity, go-to-market systems and digital initiatives including the company’s presence and scale on e-commerce, which Laguarta noted nearly doubled in the third quarter.

“When we say Stronger, we mean that we must continue to transform our cost structure, capabilities and culture,”​ he explained.

This included increased investment in consumer insights and tighter perimeters around revenue management, diversifying its workforce and encouraging employees to “act like owners to get things done quickly,”​ he said.

Finally, to become a “better” organization, Pepsico is committed to becoming “planet positive by supporting practices and technologies that improve farmer livelihoods and agriculture resiliency,” ​more efficiently using limited resources and reducing greenhouse gas emissions through the value chain, he said.

It also plans to invest more in local communities, advance “respect for human rights”​ and create more divers and inclusive workplaces, he said.