On the Call: PepsiCo Inc. CFO Hugh Johnston

Bloomberg / BusinessWeek

 

PepsiCo Inc. lowered the top end of its guidance on Thursday because of investments to expand its presence overseas.

The company reported results for its third-quarter but investors focused on its guidance.

The company, based in Purchase, N.Y., has expected earnings per share to rise between 11 percent and 13 percent for the full year, but cut the top end for a new range of 11 to 12 percent. Pepsi also expects the drag of foreign currency to hurt earnings by 1 percentage point, so it expects core earnings per share to range from 10 to 11 percent growth. Revenue from foreign countries can be affected by fluctuations in exchange rates when they are converted back into U.S. dollars.

CFO Hugh Johnston talked about the guidance on a conference call with investors Thursday.

QUESTION: What is the bottom line with changes to your guidance?

RESPONSE: From our standpoint, we gave a range of 11 to 13 (percent). We've consistently said 11 to 13 and we're now staying within that range of 11 to 13. What we really talked about here is much more geared towards making investments in good opportunities in the marketplace, some of which are nearer in nature, some of which are a little bit further out in nature but all of which are geared toward building the business and all of which have good returns on them.

So in terms of any expectation that we had, frankly it's exactly in line with what we had been communicating.

So no big change from our standpoint. ... In terms of where we expect revenue to go, obviously we saw good solid performance in the third quarter and we're expecting to continue to see good solid revenue performance.

So we feel good about the operating performance of the business right now.

Pepsi Ups China Investment, to Build New Plants

Reuters

 

PepsiCo Inc said it is planning to up its investment in China by $2.5 billion over the next three years, as it sees more growth in the market.

This new investment is apart from the $1 billion the cola and snack food giant had announced in 2008, and which will be completed this year.

"This investment reflects very clearly our great confidence in China and our long-term commitment to this very important, growing market," Chief Executive Officer Indra Nooyi said in a statement.

The new investment will be allocated to a variety of projects, including new manufacturing facilities, a significant scaling up ofthe company's research and development operations, expanded agricultural development and brand-building initiatives.

Pepsi, which competes with Coca-Cola Co (KO.N) and Dr Pepper Snapple Group Inc (DPS.N), plans to open 10 to 12 new plants in China to manufacture soft drinks, non-carbonated beverages and snacks and will install additional production lines in existing facilities.

"We look forward to continuing to evolve our business in China and offer Chinese consumers a full portfolio of foods and beverages," Nooyi, who is in Shanghai to visit the Shanghai Expo, added.

Pepsi to Cut Sugary Drinks from Schools Worldwide

USA Today

The iPod Generation will get a global lesson in healthier beverages from an unlikely source: Pepsi.

PepsiCo on Tuesday announced plans to voluntarily remove high-calorie sweetened drinks from schools for kids up to age 18 in more than 200 countries by 2012. Coke and Pepsi agreed to stop selling sugary drinks in U.S. schools in 2006.

Pepsi is responding to demands from activists that food and beverage companies not offer kids products linked to childhood obesity. The action came on the day that Michelle Obama stood before an annual conference of the world's largest food companies and urged them to "entirely rethink" the products they market to kids.

Branding expert Jonathan Salem Baskin is skeptical of Pepsi's motives. "Coke taught the world to sing. Pepsi is going to teach the world to diet?"

He suspects not: "My heart and soul want me to believe this is a statement of principle. ... So how are we (Americans) supposed to show our appreciation to Pepsi? By doubling our consumption?"

Well, that would help. While global carbonated soft-drink consumption was up about 1% in 2008 — the most recent year tracked — it was down 3% in the U.S., reports Beverage Digest.

Pepsi received some compliments on its move — including one from a longtime adversary.

"We applaud Pepsi for its global commitment," says Bruce Silverglade, legal affairs director of the Center for Science in the Public Interest. "But shame on Coca-Cola for insisting on targeting high school students in most countries around the world."

Coke announced this month it won't sell sugared drinks in primary schools worldwide unless asked, but it is not matching Pepsi's move for high schools. "We believe school authorities should have the right to choose what is best for their schools," says spokeswoman Crystal Warwell Walker.

Coke's global share of carbonated soft-drink sales is 50.5% vs. Pepsi's 22.2%, says Beverage Digest. Pepsi said it did not have exact numbers for school sales, but said it's not a major part of global sales.

John Sicher, publisher of Beverage Digest, says Pepsi's move is smart. "It's the old adage: They want to do well by doing good."

PepsiCo Seeks to Raise Stakes on Super Bowl Ads

Contest With $1 Million Prize for Consumers' Commercials Goes After Pregame Buzz and Anheuser-Busch's Top Ranking

When it comes to pumping out Super Bowl ads that score well with viewers, Anheuser-Busch is widely acknowledged to be the master. This year, PepsiCo has a new tactic to steal some of the brewer's limelight with new youth marketing techniques.

The snack-and-beverage company is offering $1 million to anyone who can create a Super Bowl commercial for its Doritos tortilla chip brand that trumps all other ads in viewer rankings during the gridiron matchup. It's part of an effort to raise the stakes on a contest the company ran two years ago.

PepsiCo is offering $1 million to anyone who can produce a Doritos ad good enough to top a viewer poll at the Super Bowl.

PepsiCo would, of course, love to win top honors, as measured by USA Today's Super Bowl Ad Meter, one of the more popular Super Bowl ad polls. But the company also has another motive with its contest. By dangling a $1 million prize, it hopes to dominate the months of pregame buzz, which many public-relations and ad executives say is far more valuable than winning the myriad Super Bowl ad polls.

This has become a critical way to help offset the high costs of youth marketing during the Super Bowl. Ad time for this season's game is selling for about $3 million for 30 seconds, up about 10% from last season.

Nationwide Mutual Insurance, for example, generated 3,584 news stories about its Super Bowl ad in 2007, which starred Kevin Federline, Britney Spears's ex-husband, working in a fast-food chain. The company estimates its push generated $23.3 million in free publicity. (Public-relations firms calculate these figures by assigning dollar values to every single media mention, whether it's a story in the Chicago Tribune or a piece on a local NBC affiliate.)

To top the polls, PepsiCo's consumer-generated ad would have to outperform the King of Beers, which has won the top spot for the past 10 years in a row, thanks in part to a highly detailed pregame ritual. Its formula involves multiple ad shoots and pregame focus groups around the country to measure viewers' minute-by-minute reactions to its spots.

"We're always impressed with the array of creative the Super Bowl brings, and we'll watch the game like we always do toasting with some of our fine beers and enjoying the show," says Bob Lachky, chief creative officer at Anheuser-Busch.

Doritos' marketers are trying to revive the excitement they created at the Super Bowl two seasons ago with a contest inviting consumers to submit their own 30-second ads for the famous triangular chip. It marked the first time marketers used consumer-generated ads at the big game, putting PepsiCo on the cutting edge of a new trend that shook up Madison Avenue by proving some ordinary folks, too, can create ads that can measure up to what highly paid creative executives produce.

The contest generated $36 million in free publicity for Doritos before and after the game, a Doritos executive told a conference in March 2007. Two spots, chosen from five finalists in an online consumer poll, aired during the game.

One ad, showing a love-struck driver crashing, crunching his face and bag of Doritos into a steering wheel at the sight of a pretty Doritos fan, scored 7.95 out of a possible 10 points in the poll and came in fourth behind three Anheuser ads.

The other, showing a supermarket cashier flirting with a Doritos-loving customer as she rang up bags of chips, scored 6.18.

Doritos didn't have as much luck with its contest for last season's Super Bowl. PepsiCo asked people to submit original music for a chance to have their tune aired during the game. But its winning video ended up lowest-ranked on the USA Today poll, scoring a 4.5.

The bigger winner: Budweiser with a spot featuring a Dalmatian training a Clydesdale to make the beer wagon team. The spot scored 8.73.

Doritos made a save by also showing another finalist ad from the previous year's hit contest; it scored 7.95, coming in fourth in the poll.

Now, Doritos' marketers face the challenge of finding an ad that will stand out at a time when consumer-generated advertising is no longer a hot trend.

"The newness that made it special in 2007 is gone -- now it's just another ad," says Dave Balter, chief executive of BzzAgent, a word-of-mouth media company based in Boston. "They are trying to manufacture buzz."

Ann Mukherjee, vice president of marketing for PepsiCo's Frito-Lay snack unit, says the company decided to offer the $1 million prize as an appropriate way to raise the stakes.

"Who knows?" she said when asked if she believes a consumer can beat out Anheuser-Busch. Doritos fans have shown themselves to be "amazing, talented individuals. The important thing is we're giving them the opportunity."

Even if none of five finalists topples Bud, each will still receive $25,000 and a trip to the Super Bowl.

The ad that wins the most votes in an online poll will be aired during the game. Voting will occur in January.

By: Betsy McKay and Suzanne Vranica
Wall Street Journal; September 24, 2008

PepsiCo CEO Adapts to Tough Climate

Indra Nooyi, PepsiCo Inc.'s chairman and chief executive, is steering the snack and beverage giant through its biggest challenges in nearly a decade.

Tough economic times are pummeling beverage sales in the U.S., Pepsi's biggest market. Grain, vegetable-oil and other commodity prices have climbed. Rival Coca-Cola Co. is out to grab market share from Pepsi in juices and other noncarbonated drinks. Last week, Coke offered to buy a big Chinese juice company for about $2.4 billion.

Born in India, Ms. Nooyi, 52 years old, joined PepsiCo as head of corporate strategy 14 years ago. She was a major force behind Pepsi's decision to spin off its Pizza Hut, Taco Bell and KFC restaurants and buy Tropicana, Quaker Oats and other makers of healthy drinks and snacks. Broadening its portfolio has allowed Pepsi to take the lead in the U.S. in the beverages that are growing the fastest: juices, flavored and bottled waters, teas and other drinks.

In an interview, Ms. Nooyi talked about managing in a volatile economic climate while expanding around the globe. Excerpts:

WSJ: Why are beverages being hit harder than snacks by the economic slowdown?

Ms. Nooyi: Beverages are a much more penetrated category. We also had a lot of wastage -- people unscrewed their bottle and didn't finish it all. Now they're carrying the bottle longer and finishing the beverage.

A convenience-store operator told me we used to have a big cadre of construction workers who came in the morning and bought their Mountain Dew and their Doritos. That consumer isn't there now because the housing market is down. So what you get is the consumer who walks in and picks up a bag of Doritos but can do without the [drink]. We haven't seen this kind of slowdown in convenience-store traffic in 25 years.

WSJ: What can be done to keep beverage sales from slipping further in this economy, and to revive consumer interest in soda?

Ms. Nooyi: You really have to segment your portfolio very, very carefully. You want targeted innovation that grabs the consumer and gives people a reason to buy. If a natural zero-calorie or low-calorie sweetener is approved and it tastes good in carbonated soft drinks -- two ifs -- then there is a reason for people to come back.

People still love bubbles. I have a 15-year-old daughter, and she drinks Pepsi every day. We have to give people a reason to come back to cola. We've got to romance them.

WSJ: Is PepsiCo international enough?

Ms. Nooyi: Forty percent of our revenue comes from international. Most of our growth is coming from international. We can't help it if our North American business is also growing. We know that a lot of the growth potential is overseas, and we are going after it aggressively.

WSJ: Do you want to unseat Coke in international beverage sales?

Ms. Nooyi: What's the value of unseating Coke? Let me tell you our game. In the Middle East and parts of Asia, where we are strong, we want to remain very, very strong. Where the market growth is spectacular like China, India, Russia, we are going to keep investing so that when the music stops we have a great shot at being up there as the leader. And then in all the other markets, we want to play the noncarbonated game aggressively.

WSJ: Is the era of cheap commodity prices over?

Ms. Nooyi: I wouldn't say so. Wheat prices were at a record high six months ago, and now we are having a record wheat crop, so those things can turn on a dime. I think what needs longer-term fixing are energy costs.

WSJ: You have talked about tackling obesity. Some people would say it's insincere or hypocritical for the chairman of a company whose biggest products include Pepsi-Cola, Lay's and Doritos to do that.

Ms. Nooyi: Why should they think I am being insincere or hypocritical? There is a place for Pepsi, because it tastes great. Potato chips are part of the American diet.

I am extremely proud of our track record. Name me one other company that took out trans fats from all its products without increasing the price of its products -- four or five years before anyone else. We're doing everything possible to shift our portfolio to "better for you" or "good for you" products.

WSJ: Gatorade lost some share last year, and you changed the brand's management team. How's it doing now?

Ms. Nooyi: Brands go through ups and downs. Gatorade is an extremely strong brand. I think every five or seven years, you've got to change out the approach to the brand, because you need a new boost of energy to think about the next iteration. Brands never die. You only stop reinventing them.

WSJ: How do you keep up with what's going on in the market and get new ideas for products?

Ms. Nooyi: I do market tours all the time. Every weekend I hop in the car and go somewhere. I listen to kids talk about what they're consuming, what they're doing, what they're not doing.

I read a range of things to keep in touch with cultural and lifestyle trends -- the usual business press but also People and Vanity Fair and anything close to the cutting edge of the culture. Even the AARP magazine.

WSJ: Which PepsiCo products do you eat and drink?

Ms. Nooyi: Most days for breakfast I have a bowl of plain Quaker oatmeal and a glass of Tropicana juice with lots of pulp. At lunch, I have to have Lay's Kettle chips, slightly heated. You heat them for about 10 or 15 seconds. One of my favorite drinks is Mirinda Orange, which we make overseas.

We have Lay's chips for dinner every night. Indian cuisine has a crisp with dinner -- a papadum -- but we just use Lay's Kettle chips or Miss Vickie's Simply Sea Salt or Jalapeño.

When my daughter drinks Pepsi, I always have half a glass. Ice-cold Pepsi is to die for.

By: Betsy McKay
Wall Street Journal; September 11, 2008