PEP PepsiCo Inc

By Jennifer Maloney and Dave Sebastian 

PepsiCo Inc. is grappling with a drop in beverage sales caused by coronavirus lockdowns, as fewer people grab sodas on the go at convenience stores and gas stations. The decline in the company's beverages has been only partially offset by an increase in sales of potato chips, oatmeal and pancake mixes, as consumers eat breakfast at home and snack more throughout the day.

"The negative impact on beverages is more significant than the positive impact on snacks and foods," Chief Executive Ramon Laguarta said in prerecorded remarks posted on the company's website Tuesday. PepsiCo posted higher sales for the first quarter of the year but withdrew its full-year guidance citing the uncertainty caused by the Covid-19 pandemic.

The maker of Doritos, Lays potato chips, Quaker oats and Aunt Jemima syrup said its food brands have benefited as consumers sheltering in place look for comfort in trusted, well-known brands. That trend may continue even as economies reopen, Finance Chief Hugh Johnston said in an interview.

"For a long time, craft, niche-y brands got quite popular," he said. "It wouldn't surprise me, I would say, if brands that have made a comeback...sustained some of that as people got reacquainted to them."

Rival Coca-Cola Co. last week reported revenue was down 1% for the March quarter and cautioned that its global beverage volumes had dropped by 25% in April. Coke executives warned that consumer spending is unlikely to bounce back immediately as countries begin to reopen, and said they expect the biggest impact on the company's second-quarter results.

Mr. Johnston declined to say by how much PepsiCo's beverage volumes had dropped in April. He said he expects to see sales rebound in restaurants and convenience stores before they come back to larger venues such as movie theaters and sports stadiums. He added that he didn't know how the pandemic might change consumer behavior over the long run. "It's a great question and one that we wrestle with every day," he said.

PepsiCo also is leaning hard into energy drinks. A month after buying Rockstar Energy Beverages for $3.85 billion, the soda-and-snacks giant said Tuesday it had signed a deal to distribute another energy drink: Bang, the third-largest in the U.S. behind Monster and Red Bull.

For the first quarter, PepsiCo reported sales rose 7.7% from a year ago to $13.88 billion. Excluding the effect of currency swings and acquisitions, so-called organic revenue rose 7.9% for the first three months of the year.

Revenue at its North American beverage division, the company's biggest contributor, rose 7.3% to $4.84 billion. In its Frito-Lay North America division, which produces potato chips and other snacks, sales rose 6.8% to $4.07 billion.

Net income fell to $1.34 billion from $1.41 billion in the comparable quarter last year. Adjusted earnings were $1.07 a share, ahead of the $1.03 a share analysts polled by FactSet were expecting.

Write to Jennifer Maloney at jennifer.maloney@wsj.com and Dave Sebastian at dave.sebastian@wsj.com

(END) Dow Jones Newswires

April 28, 2020 09:40 ET (13:40 GMT)

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