PepsiCo (PEP): Steady snacking habits amid pandemic drive strong quarter for beverage giant

PepsiCo Inc. (NASDAQ: PEP) beat market expectations on both revenue and earnings for the third quarter of 2020. The company saw the momentum continue in its snacks business while the beverages division witnessed an improvement during the period.

Quarterly performance

Revenues amounted to $18 billion, reflecting a growth of 5.3% on a reported basis and 4.2% on an organic basis. The results were driven by strength in the snacks business as well as an improvement in the beverages unit. Core EPS rose 6% to $1.66.  

The company saw revenue increases across all its segments on a reported basis with the exception of Latin America which fell 13%. On an organic basis, all segments recorded sales growth barring Africa, Middle East and South Asia which dropped 2%.

Category performance

In the North America snacks and food business, the company witnessed solid growth for both Frito-Lay and Quaker Foods as people continued to consume snacks and quick meals at home despite the easing of pandemic-related restrictions.

Frito-Lay gained market share in the macro-snack category during the quarter with strong results across its billion-dollar brands. The company saw double-digit revenue growth for Tostitos, high single digit growth for Cheetos and mid single digit growth for Doritos and Ruffles.

Within Quaker Foods, revenues grew double digits in lite snacks, pasta and macaroni and cheese. Pancake mixes and syrup sales grew in the high single digits while ready-to-eat cereal also saw good growth.

The beverages business saw an improvement in results driven by double digit revenue growth in bubly and Lipton, and single digit growth in Gatorade, Mountain Dew, Tropicana and Pepsi. PepsiCo continues to invest in its Pepsi Zero Sugar product, which has grown retail sales by over 30% year-to-date.

PepsiCo witnessed resilience in its international snacks and beverages businesses with organic revenue growth from developed markets outpacing developing and emerging markets. The company gained share in many of its key snack markets such as Mexico, Brazil, China and Russia while in beverages, it picked up share in regions like the UK, Russia, Turkey, France, Germany and Thailand.

Acquisitions

PepsiCo’s strategic acquisitions have helped boost its product portfolio and in the first half of 2020 alone, the beverage giant acquired three companies. In March, PepsiCo acquired South African food and beverage company Pioneer Foods and in April, it acquired energy drink maker Rockstar.

PepsiCo also entered into an agreement with Vital Pharmaceuticals last quarter to exclusively distribute Bang Energy Drinks in the US. In June, the company acquired Chinese online snack company Be & Cheery.

Outlook

Looking ahead, PepsiCo expects its North America and international snacks business to remain resilient. The beverages business is expected to maintain its momentum in North America for the rest of this year but in international markets, it is likely to recover at a slow pace due to the pandemic.

For the full year of 2020, PepsiCo expects organic revenue growth of approx. 4% and core EPS of approx. $5.50. The company expects foreign exchange translation headwinds to negatively impact revenue and core EPS by 2%.

The company expects to return approx. $7.5 billion to shareholders through dividends of approx. $5.5 billion and share repurchases of approx. $2 billion.

Click here to read the full transcript of PepsiCo Q3 2020 earnings conference call