PEP PepsiCo Inc

'Guilt-free' foods and drinks account for 45% of net revenue; global challenges remain

By Jennifer Maloney 

PepsiCo Inc.'s push into healthier foods and drinks is helping lift revenue amid a slowdown in global demand for traditional soda.

Chief Executive Indra Nooyi said the Purchase, N.Y., maker of Frito Lay snacks, Gatorade and its namesake cola expects global economic challenges to continue this year but "we are making considerable progress" in diversifying the company's portfolio.

Products that the company calls "guilt-free" accounted for 45% of net revenue in 2016. Those products include diet sodas as well as snacks with low levels of sodium and saturated fat. The company's namesake cola accounted for 12% of net revenue in 2016.

In October, PepsiCo revised its goal for revenue generated from nutritious foods and drinks. It is now aiming for sales growth of those products to outpace the rest of its portfolio by 2025.

Organic revenue rose 3.7% in the fourth quarter, stripping out currency fluctuations, acquisitions and an extra week of sales because of timing. Revenue rose 5% to $19.52 billion.

The company's research and development spending has increased 45% since 2011 and is focused on "sugar, calorie, fat and sodium reduction and more sustainable packaging alternatives," Ms. Nooyi said Wednesday during a call with investors.

In 2016, the company launched a reformulated version of 7UP with 30% less sugar, now rolling out in more than 80 markets outside the U.S., Ms. Nooyi said. ( Dr Pepper Snapple Group Inc. sells 7UP in the U.S.)

PepsiCo also launched a line of Tropicana fruit juices with probiotics, and a line of healthy snack bars called Quaker Breakfast Flats, which will be in more than a dozen countries over the next two years, Ms. Nooyi said. The company is broadening its lineup of baked snacks and is expanding Sabra from hummus to a range of products including guacamole, salsa and Greek yogurt dips.

PepsiCo's food and snack volumes rose 3% in the fourth quarter. Its beverage volumes increased 1%, beating rival Coca-Cola Co., whose volumes world-wide fell 1% in the same period.

Hugh Johnston, PepsiCo's finance chief, said in an interview that to drive more growth, "we're going to continue doing what we've been doing, which is we'll want to innovate, particularly in the area of lower sugar. We'll continue to invest behind interesting brands."

Mr. Johnston pointed to the recent launch of LIFEWTR, which this month was highlighted in Pepsi's first-ever Super Bowl ad devoted to a bottled-water brand. LIFEWTR is intended to compete with Coke's fast-growing premium brand, smartwater.

Ms. Nooyi acknowledged "a bit of a hiccup" in 2016 on Diet Pepsi, which PepsiCo reformulated with sucralose, then reintroduced with the controversial sweetener aspartame. She said the company has now shifted its focus from Diet Pepsi to Pepsi Zero Sugar, which the company featured as the sponsor of this year's Super Bowl half-time show.

The company saw organic growth of 9% in Latin America despite the impact of the strong dollar, with a 4% increase in food and snack volumes offsetting a 3% decline in beverage volumes.

In North America, its Frito-Lay group posted 3% organic growth. Quaker Foods was flat.

PepsiCo forecasts 2017 earnings per share to be $5.09 with organic revenue growth of at least 3%.

Write to Jennifer Maloney at jennifer.maloney@wsj.com

(END) Dow Jones Newswires

February 16, 2017 02:47 ET (07:47 GMT)

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