PepsiCo Profits Take 43% Dive in Fourth Quarter

Beverages Have Bad Year but Will Be Key Push in '09

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NEW YORK (AdAge.com) -- PepsiCo reported a 43% dive in fourth-quarter profits on writedowns and restructuring costs. Full-year profits dropped 9%.

Despite a tough year, PepsiCo continues to voice its support for the beverage category with new logos and marketing.
Despite a tough year, PepsiCo continues to voice its support for the beverage category with new logos and marketing.
During a conference call with analysts, CEO Indra Nooyi acknowledged the difficult environment and said 2009 will be similarly challenging. "Virtually all of the developed world will be experiencing a decline in GDP. Developing countries, particularly those East to the Middle East, will fair better, but they, too, will see their growth rates slowing," she said. "The good news is that, even in these times, consumers eat and drink, and so our categories are less impacted than some others."

Worldwide, beverage and snack volume increased 3%. PepsiCo Americas Beverages volume declined 3% for the year, while PepsiCo Americas Foods reported a 1% increase in volume.

Bright spot
Frito-Lay North America, the company's largest business, proved to be a bright spot. Revenue rose 8%, and volume was up 1%, in spite of commodity inflation that led to "unprecedented levels of pricing," said John Compton, CEO-PepsiCo Americas Foods.

But while consumers continued to purchase the company's salty snacks, the North American beverage category underperformed.

"The piece of the portfolio that didn't perform up to expectations was our North American beverage business, which continued to be buffeted by the category dynamics," Ms. Nooyi said. "This was an unprecedented year for the [beverage] category in North America, with the first decline in category volume in at least the last half century."

Despite a tough year, PepsiCo continues to voice its support for the beverage category. In the past few months, the company has revamped much of its beverage portfolio with new logos and marketing. That effort will remain a key focus for the company in the coming year, said Massimo d'Amore, CEO-PepsiCo Americas Beverages. He said the updated brand identities will be supported by "breakthrough marketing to the consumer at a time when it is cost-efficient to do so."

Emphasis on value
Value will also be key for the beverage category in the coming year, with a 16-ounce can priced at 99 cents and new eight- and 18-packs. Ms. Nooyi said the company is seeing positive early reads on the new packaging.

Still, Mr. d'Amore said the first half of 2009 will be a "work in progress," adding, "We expect the results of our actions to positively impact our business in the second half of 2009 and beyond."

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