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Issue Date: Vol. 42, No. 12 / October 25, 2002 - September 24, 2002 , Posted On: 10/25/2002


PepsiCo

PepsiCo was formed in 1965 by the merger of Pepsi-Cola Co. and Frito-Lay, Inc. Since then, it has grown steadily to become a world leader in convenient foods and beverages, acquiring Tropicana Products from Seagram in 1998 and merging with The Quaker Oats Co. in 2001. Today, it consists of Frito-Lay's North American and international snack businesses, the beverage businesses of Pepsi-Cola north America, Gatorade/Tropicana North America and PepsiCo Beverages International; and 'Quaker Foods North America.

PepsiCo reported that it continued to show consistent, solid double-digit earnings growth for the third quarter, with fully diluted earnings per share for the third quarter of 2002 up 14% to 56, on a comparable basis.

Net revenues for the period rose 4% to $6.4 billion during the third quarter. Year to date, net revenues also increased 4% to $17.7 billion. The third quarter of 2002 is the 12th consecutive quarter of double-digit growth in per-share earnings for PepsiCo.

"Our portfolio of businesses complemented each other and performed very well overall. We're pleased to report very strong operating profit and earnings per share growth," said PepsiCo chairman and chief executive officer Steve Reinemund. "Our margins expanded as a result of synergies from our merger with Quaker, as well as strong productivity across our divisions. We increased our market share across our key U.S. businesses, and our cash flow was extremely healthy."

Frito-Lay North America's net sales grew 3% during the quarter to $2.08 billion, compared with $2.01 billion a year earlier. FLNA's poundage volume increased 4% in the third quarter and 5% year to date.

FLNA'S considerable market share improvement and volume growth came primarily from new product introductions, single-digit growth in "Doritos," and strong growth in "Munchies Snack Mix," "Cheetos" and "Rold Gold Pretzels." The introduction of "Quaker Bites" bite-sized "Fruit and Oatmeal" bars and "Go Snacks" bite-sized snacks in convenient reclosable canisters performed as planned and contributed significantly to the new product growth.

Product innovations planned for the fourth quarter includes two new flavors for "Lay's," new "Hearty Chili Cheese Ruffles," "Tostitos Gold" and "Twisted Cheetos." The company will also introduce two "Go Snack" flavors ("Tostitos Hint of Lime" and "Ruffles 3D's") and new chocolate flavors of "Quaker Chewy Dipps." FLNA will launch "Sensible Snacks," with "Reduced Fat Lay's" and a new flavor of "Baked Doritos" (Cooler Ranch) being introduced later this year.

In the third quarter, Pepsi-Cola North America's core soft drinks showed solid growth. "Pepsi" benefited from the continued success of "Pepsi Twist" and the introduction of "Pepsi Blue," as well as from continued growth of "Diet Pepsi."

Bottler case sales of "Mountain Dew" were also higher than the prior year, reflecting continued gains in "Code Red" and the rollout of "Diet Code Red," while "Sierra Mist" grew 11%.

"Aquafina" water continued to display strong double-digit growth, and was the key driver of the 18% growth in PCNA's total non-carbonated portfolio during the quarter.

In the fourth quarter, PCNA expects to continue to benefit from recently introduced new products, including "Pepsi Blue" in take-home-size packages, "Diet Code Red" and "Brisk" Lemonade.

Total volume for Gatorade/Tropicana North America for the third quarter of 2002 increased 10%, driven by strong 16% volume growth for Gatorade. Tropicana's volume was essentially flat. On a year-to-date basis, total volume grew 7%, reflecting 15% volume growth in the Gatorade portfolio, partially offset by a 2% decline in Tropicana products. Total net revenues increased 8% in the third quarter, reflecting the voluem browth but partially offset by higher promotional spending.

Volume gains in the "Tropicana Pure Premium" and "Dole Blends" portfolios were offset by declines in the ambient and from-concentrate juice businesses.

Gatorade's strong volume performance was driven by its "Is It In You?" media campaign, and continued success of new products including "Gatorade Ice" in Strawberry, Orange and Lime flavors; "Gatorade Xtremo!" including Mango, Citrico and Tropicale flavors; a new "Gatorade Frost" flavor, Cascade Crush; and the national rollout of "Propel Fitness Water."

Quaker Foods North America volume declined 6% for the quarter, but was down less than 1% year to date. The volume decline reflected softness in ready-to-eat and hot cereals as well as the impact of a shorter 2002 reporting period for Canada Foods. /QFNA's operating profits grew a healthy 14% for the third quarter (and 22% year-to-date), principally reflecting lower costs from merger synergies and productivity initiatives.

The integration of PepsiCo's merger with The Quaker Oats Co. is reportedly proceeding as planned. The company expects to realize synergies of more than $200 million for fiscal year 2002 as a result of the merger, and the economies and efficiencies associated with it.


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