PepsiCo expressed confidence Thursday that new products — including protein-infused Starbucks coffee, low-sugar Gatorade and Doritos with all-natural ingredients — will boost flagging consumer demand in the coming year.
Rapidly changing consumer preferences have dogged the maker of Frito-Lay snacks and Pepsi beverages. PepsiCo said Thursday that its food business revenue fell 3% in North America in the third quarter.
But PepsiCo Chairman and CEO Ramon Laguarta said Thursday that the company is moving quickly to cut underperforming products and reinvest in new ones, including a “NKD” line of Doritos and Cheetos with no artificial flavors or colors. Tostitos and Lay's chips with no artificial dyes will soon be on sale in the U.S.
“Innovation is critical for us, and we’ve been working with a real sense of urgency on new platforms to capture segments of the market that are disproportionately growing,” Laguarta said during a conference call with investors.
PepsiCo is already seeing good results from innovation on the beverage side. Pepsi Zero Sugar saw double-digit net revenue growth in the July-September period, the company said, while Mountain Dew sales got a boost from new flavors like Summer Freeze and Dragon Fruit. PepsiCo said its North American beverage revenue rose 2% in the third quarter.
PepsiCo said its total revenue rose 2.6% to $23.94 billion in the July-September period. That was better than the $23.84 billion Wall Street was expecting, according to analysts polled by FactSet.
Net income fell 11% to $2.6 billion. Adjusted for one-time items, the company earned $2.29 per share. That also beat analysts’ forecasts of $2.26.
PepsiCo shares rose nearly 3% in afternoon trading.
The company, based in Purchase, New York, has been under some pressure from Elliott Investment Management, an activist investor that recently took a $4 billion stake in PepsiCo.
In a letter sent to PepsiCo’s board last month, Elliott said the company has been hurt by loss of market share in its North American beverage business and slowing growth and weaker profits in its North American food business.
Elliott wants PepsiCo to slim down its food and beverage portfolio so it can reinvest in core brands. It also wants the company to consider refranchising its North American bottlers, a process that its rival Coca-Cola completed in the U.S. in 2017.
Laguarta said Thursday that his discussions with Elliott have been “very constructive and collaborative."
“We’re trying to understand each other. I think we’re aligned on one thing, which is critical, which is PepsiCo is undervalued,” he said.
Laguarta said PepsiCo will consider refranchising, which might work in some geographic locations better than others. But he said PepsiCo also sees a future of increased online sales and delivery demand and technology that will make warehouse operations even more efficient.
“We need to solve for the demands of the future that will be different from the demands of the past,” he said. “We can eliminate some of the human bottlenecks in ways that we couldn’t do before.”
Also on Thursday, PepsiCo named Walmart executive Steve Schmitt as its new chief financial officer. Schmitt was the CFO for Walmart's U.S. division.
Current PepsiCo CFO Jamie Caulfield plans to retire on Nov. 10 after more than 30 years with the company. He will remain at PepsiCo until May 15 in an advisory role.