PepsiCo profits up but sales weak

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Profits were up at PepsiCo, the conglomerate behind brands like Pepsi, Lipton Tea and Quaker Oats.

Healthy

PepsiCo’s move into healthier drinks and snacks has driven this unexpected growth, as the war on sugar takes its toll on sugary fizzy beverages and confectionery. Around 40% of revenue comes from these “guilt free” snacks, which provides investors with some relief when the number of American states implementing sugar taxes is on the rise.

There’s also been a diversification into premium ranges, such as premium bottled water and Quaker Overnight Oats. These goods possess a bigger margin.

Cost cutting

Part of the profit growth was down to cost cutting measures. This is because the fizzy drink market is facing sluggish sales in general, as consumer habits change. But at least PepsiCo outperformed Coca-Cola.

Both companies are trying to resolve this drop by focusing on higher margin products rather than big discounted packs.

Issues

Although the headline financials were solid, gross margin was down because the industry is also facing increased ingredients costs. Whilst PepsiCo has decided to up prices to compensate, they are doing so slowly in order to let consumers adapt to price changes. Once this transition has been completed, margins should return.

Also, PepsiCo is still reeling from a PR disaster, in the form of a misjudged commercial with Kendall Jenner which was immediately pulled.

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