Snack sends Pepsi sales soaring; stock rises
PepsiCo Inc (PEP.N) reported a better-than-expected profit for the second quarter on Thursday, buoyed by lower raw material costs and higher demand for Frito-Lay snacks and new beverages in North America.
PepsiCo's shares rose 1.3 percent to $107.35 in premarket trading, setting up shares of the maker of Pepsi, Gatorade and Tropicana to scale a record high in regular trading. Pepsi also boosted its forecast for adjusted profit for the year.
New drinks such as Propel flavored water and Naked Cold Pressed juice, Smartfood Popcorn and snacks under its "Simply" brand helped drive sales, the company said.
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PepsiCo and other food companies are spending more to develop new products to meet the changing tastes of consumers who are increasingly seeking healthier drink and snack options.
"The North American strength is a big driver behind raising guidance for the year because North America really is performing strongly right now," Hugh Johnston, PepsiCo's chief financial officer told Reuters.
Pepsi has doubled its research and development spending over the last 5 years and new products now account for 9 percent of PepsiCo's revenue, up from 5 percent in past years, Johnston said.
PepsiCo's cost of sales fell 6 percent in the three months ended June 11.
That helped net income attributable to PepsiCo increase 1.3 percent to $2.01 billion, or $1.38 a share.
Excluding items, the company earned $1.35 per share, beating the average analyst estimate of $1.30, according to Thomson Reuters I/B/E/S.
Net revenue fell 3.3 percent to $15.395 billion, but inched past the average analyst estimate of $15.37 billion.
Net revenue in the North America Beverages unit, PepsiCo's biggest business, rose 1 percent – the slowest growth since the company started breaking out beverage sales from the region a year ago.
Revenue from the Frito-Lay business, which includes Doritos, Lay's and the Simply line of snacks, rose 3 percent. New snacks launched under the Simply brand included Simply Tostitos black bean chips and organic chunky medium salsa.
PepsiCo said it now expects 2016 adjusted earnings of $4.71 per share, up from its previous forecast of $4.66 per share.
(Reporting by Sruthi Ramakrishnan in Bengaluru and Melissa Fares in New York; Editing by Savio D'Souza and Bernadette Baum)
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