PepsiCo reported better-than-expected earnings Tuesday, with the company’s 16 percent boost in profits signaling a strong send-off for chief executive Indra Nooyi on her last day in the position.
Nooyi announced in August that she would step down after 12 years at the helm of the food-and-beverage giant and will stay on as chairman until early 2019. During her tenure, Pepsi reached into snack categories offering organic, healthful alternatives to colas and chips, including Sabra hummus and Bare Foods, a maker of fruit and vegetable snacks. Nooyi’s departure also highlighted the relative lack of female leaders — and particularly women of color — at the top of major corporations.
Nooyi will be succeeded Wednesday by Ramon Laguarta, who has been Pepsi’s president since last year and has been with the company for 22 years.
Pepsi has focused on its beverage brands Gatorade, Pepsi and Mountain Dew — which helped deliver organic growth in the North American beverage business of 2.5 percent. But on an earnings call Tuesday morning, executives acknowledged the growth came at a cost, as its operating profit in the category decreased 14 percent, in part because of transportation costs.
As a further sign of its push in the beverage category, Pepsi said in August that it would buy SodaStream International for $3.2 billion. The purchase demonstrated Pepsi’s growing interest in seltzer, which has seen a surge in popularity in recent years through brands such as La Croix and Polar. Nooyi said that over the past three years, Pepsi has seen consumers increasingly push for health and wellness options, including whole grains or zero-calorie flavored waters. While there are varying opinions on artificial sweeteners and high-fructose corn syrup, millennials are clearly driving a trend toward more healthful foods and beverages, she said, adding that prepared meal options and home delivery have also helped remove barriers to more healthful products.
Core earnings per share came in at $1.59, an increase of 7 percent. The company reported third-quarter net income of $2.49 billion, a 16 percent bump from $2.14 billion the year before. The company said it expects at least 3 percent organic revenue growth for the full year.
In an analyst report Tuesday morning, Barclays analyst Lauren Lieberman said the company’s top line was stronger than anticipated across international markets and that analysts would be “curious to learn more about longer-term plans for these markets particularly with the CEO transition later this week."
Sonia Vora, equity analyst at Morningstar, said she does not expect Pepsi’s long-term strategy to change with Laguarta as chief executive. The company will probably continue to build its portfolio of more healthful options, which now contribute roughly half of sales, compared with 38 percent of sales 12 years ago. Vora also noted Nooyi’s successful push for keeping beverages as well as snacks as central parts of Pepsi’s strategy, despite pressure to move away from drinks.
Keeping up that combination “can actually shore up the firm’s competitive edge,” Vora said.
Asked on an earnings call what she views as Pepsi’s biggest opportunities and challenges ahead, Nooyi said there was more opportunity to explore how snacks can act as mini-meals. That can include snacks paired with dips or sports beverages that can be framed as more holistic, nutritional meal options.
In her final remarks, Nooyi praised the company’s achievements, from investments in human rights and clean drinking water to nutritious retail options, and said that between 2006 and 2017 the company’s net revenue grew by more than 80 percent. Pepsi added a new billion-dollar brand almost every other year, she said.
It was time to finish out her tenure as chief executive, Nooyi said, “even though I still have a lot of fuel left in my tank."