PepsiCo Profit Down, But Marketing Spend Spikes

Global Marketing and Ad Spending Up 11% in First Quarter

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PepsiCo's first quarter earnings report Thursday morning showed that the snack and beverage giant's profits had fallen 5% from the period a year earlier, but also revealed a big jump in marketing and ad spending.

The company's global marketing and ad expenses shot up 11% in the first quarter, compared with the first quarter of 2012, according to PepsiCo's report. That's counter to a number of big multinationals that are being more conservative with their ad spend these days.

But PepsiCo has been continuing to ramp up investments in marketing for core brands such as Pepsi, Gatorade, Lay's and Quaker. In 2012 it pledged to spend an additional $500 million to $600 million globally on its core brands, a promise the company has said it kept. The global jump in the first quarter follows a 30% spike in its U.S. measured media spending last year, to a total of $834 million, according to Kantar Media.

During a conference call with analysts, Chief Financial Officer Hugh Johnston reiterated that advertising and marketing expenses will comprise at least 5.7% of sales, matching the 2012 investment.

Indra Nooyi, chairman-CEO of PepsiCo, said that the company's $3 billion productivity program is making room for the additional marketing investments. The company has targeted $900 million in savings this year.

"With the productivity we're unlocking, we're able to invest in growth drivers like advertising and new product launches and to simultaneously drive margin improvement," Ms. Nooyi told analysts.

The company also said it is increasing spending in innovation as well as research and development. In the North America beverages space, in particular, Ms. Nooyi said it is important to focus more on innovation and marketing, because it operates in every category, from soda and juice to water and energy drinks.

"Any growth we achieved in one business comes largely at the expense of another subcategory where we also compete," Ms. Nooyi explained. "So we have to be very careful to compete in this large and profitable business in a responsible way, focused more on innovation and marketing, balancing share and profit."

Since embarking on a "reset year" in 2012, PepsiCo has been showing signs of progress, as sales improve, along with brand equity scores and market share.

First-quarter net income fell 5% to $1.08 billion as revenue rose 1% to $12.6 billion, the company said in its earnings statement today. PepsiCo reiterated that earnings per share in 2013 will increase 7%. Global drink sales volumes in the quarter, excluding acquisitions, divestitures and currency fluctuations, rose 1%, while snack sales volume gained 4%. Frito Lay North America sales volume increased 4% in the quarter while PepsiCo Americas Beverages declined 3%.

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