PepsiCo Says Brand-Building Efforts Are Gaining Traction

U.S. Media Spending Rises 40% During Second Quarter

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PepsiCo reported second-quarter earnings today and provided an update on its brand-building efforts, which include adding hundreds of millions of dollars in advertising spending.

Indra Nooyi
Indra Nooyi

CEO Indra Nooyi said the company was on target to increase its advertising and marketing investment to 5.7% of revenue this year. PepsiCo has said it will spend an additional $500 million to $600 million to advertise its brands this year, with a focus on North America. Up to $100 million in additional spending will focus on things such as in-store display racks.

Ms. Nooyi also noted the company's progress on increasing "consumer-facing" advertising and marketing spending on a dozen core brands. Media spending jumped more than 40% in the U.S. during the second quarter, and more than 30% year-to-date, she said. According to Kantar Media, PepsiCo spent $207.2 million on measured media in the first quarter of 2012, up 8% from $190.8 million in the first quarter of 2011.

"We are beginning to gain traction with these efforts," Ms. Nooyi told analysts. "We will sustain our efforts in this area, and we are confident we are seeing higher brand-equity scores translated to top-line growth with healthy price premiums."

Chief Financial Officer Hugh Johnson said brand-equity scores are stable or improving in 85% of the company's key brands in strategic markets, with sequential improvement from the first quarter to the second quarter.

Pepsi has been a major focus of the company's investment in the first half, with the launch of its first global campaign "Live for Now," as well as a new brand positioning around the idea of "Now."

Pepsi live for now ad
Pepsi live for now ad

"It's very early to try and indicate whether or not we're seeing a result," said Al Carey, CEO-PepsiCo Americas Beverages. "The thing I like to look at is our single-serve business, which will be a first indicator. ... We see growth in brand Pepsi on single serve for the first time in a very long time."

Brand-equity scores improved during the second quarter and Pepsi Next, a mid-calorie cola, is meeting expectations, Mr. Carey added, saying he is "cautiously optimistic" about the trademark.

Ms. Nooyi also highlighted the company's progress on innovation, which she said is balanced between fun-for-you, better-for-you and good-for you products. Innovation at Frito-Lay North America drove incremental sales, she said, with Doritos doubling sales growth during the second quarter with new products such as Doritos Jacked and Doritos Locos Tacos. Ms. Nooyi also highlighted the launch of Gatorade's Prime Chews and two new flavors of Pepsi Next meant to appeal to Hispanics.

PepsiCo is calling 2012 a "transition year." The company reiterated its forecast that earnings per share excluding some costs and foreign-currency effects would decline 5% this year. During the second quarter, net income fell 21% to $1.49 billion, while sales fell 2.2% to $16.5 billion. The company hiked prices 4% globally, on top of a 5.5% gain in the first quarter. Drink volume sales rose 1%, while snacks jumped 6%.

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