PepsiCo announced Thursday it’s banking on new products to reverse flagging consumer demand, unveiling protein-infused Starbucks coffee, low-sugar Gatorade, and Doritos with all-natural ingredients. The company posted $23.94 billion in third quarter revenue, beating expectations despite North American food business sales dropping 3% as changing consumer preferences reshape the market.
CEO Ramon Laguarta told investors the maker of Frito-Lay snacks is moving quickly to cut underperforming products and reinvest in innovation. The company faces pressure from activist investor Elliott Investment Management, which recently took a $4 billion stake and wants changes.
Fresh Flavors Drive Beverage Growth
The beverage side showed strength, with Pepsi Zero Sugar hitting double-digit net revenue growth in the July-September period. Mountain Dew sales jumped thanks to flavors like Summer Freeze and Dragon Fruit, pushing North American beverage revenue up 2%.
Net income fell 11% to $2.6 billion, but adjusted earnings of $2.29 per share beat analysts’ forecasts. Shares rose nearly 3% in afternoon trading as the market embraced the turnaround plan.
Natural Ingredients Take Center Stage
PepsiCo is launching its NKD line of Doritos and Cheetos with no artificial flavors or colors. Tostitos and Lay’s chips without artificial dyes hit U.S. stores soon, targeting health-conscious shoppers.
“Innovation is critical,” Laguarta said during the conference call. The company is working with urgency to capture segments that are disproportionately growing and address loss of market share in North America.
Investor Pressure Shapes Strategy
Elliott sent a letter to the board last month highlighting slowing growth and weaker profits. The fund wants PepsiCo to slim down its food and beverage portfolio and consider refranchising North American bottlers, like rival Coca-Cola completed in 2017.
Laguarta called discussions “constructive” and said both sides agree PepsiCo is “undervalued.” He’s weighing refranchising for some geographic locations while betting on increased online sales, delivery demand, and technology to make warehouse operations efficient. The company also named Walmart executive Steve Schmitt as CFO, replacing Jamie Caulfield, who plans to retire Nov. 10 after 30 years.
