- By Mayank Marwah
PepsiCo (PEP) is adapting to the changes in the food and beverages industry, with rising preferences for healthy options and wellness products. These mega trends have been changing the dynamics of the packaged food and beverage sector. PepsiCo has been taking the required initiatives for sustainable growth. Some of its efforts include a steep decline in use of sodium and sugar content and relentless expansion of health-focused brands.
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The intrinsic value of PEP
PepsiCo is consciously stressing premium brands to support its revenue and margins in the long run. Despite the shifting trends in the industry and the relevant risks involved, the company appears to be heading higher considering the material efforts it's making to adapt to the dynamics of the market.
What looks promising?
PepsiCo's effort of widening its portfolio by introducing healthier products will fuel its long-term growth. Additionally, the beverage giant has increased its advertising expenditure and expansion of e-commerce network globally, which again solidifies its future growth potential. The company's solid distribution network is noteworthy, besides its initiative to use big data for improved customer communication and understanding. This should enable PepsiCo develop a refined e-commerce platform to boost its revenue.
Recently the company expressed its interest in acquiring Vita Coco in a $1 billion deal. Vita Coco, being a leading coconut water brand, would be a great value addition to PepsiCo's portfolio. If the deal goes through, it would undoubtedly aid the company's sales and bottom line in the future.
Healthy financials
The US-based multinational food, snack and beverage giant recently released its second quarter earnings, beating both revenue and earnings estimate, thanks to the higher sales in the Frito-Lay segment in North America. Revenue for the quarter came in at $15.7 billion, up 2% as compared with last year's same quarter. Net income surged 5% in Q2 of 2017 to $2.1 billion as compared with Q2 of 2016.
PepsiCo's two principal sectors namely Frito-Lay North America (FLNA) and North America Beverages (NAB) flourished during the period producing net revenue growth of 3% and 2%, respectively. The company's organic growth for the quarter was striking, up 3% which was an improvement from 2.1% in the first quarter.
While stressing the need to be more inventive and innovative, PepsiCo CEO Indra Nooyi said in a press conference, "We have a can-do spirit with a must-do result... The business is very different than it was five years ago and we expect it to be very different five years from now."