Commentary

Pepsi Is 'Bubly' About Its New Products As Old Timers Also Gain

Some old standards -- traditional Pepsi and Frito-Lay chips, for example -- are faring well under the new generation leading PepsiCo -- but it also has high aspirations for trendy new entries like Mountain Dew Game Fuel, Pepsi Mango and Bubly sparkling water. 

The Purchase, New York-based company reported profit and revenue gains for its second quarter 2019, ending June 15, that beat Wall Street estimates -- thanks, in part, to price hikes imposed in the U.S. last fall to cover rising transportation and aluminum costs.

“CEO Ramon Laguarta -- who took over last fall following the departure of longtime CEO Indra Nooyi -- said Pepsi is commanding higher prices because consumers are moving to smaller pack sizes and to healthier, higher-value foods that tend to cost more. Growth in convenience store and dollar store sales are also contributing,” the AP reports.

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“Those are trends that you could see as positive trends for the category,” Laguarta said in a conference call with analysts transcribed by Seeking Alpha, adding that North American beverage sales were slower in the spring because of cold, wet weather.

“We’re … trying to understand much better the consumer, trying to understand the different occasions the consumer is going into our categories and maximize obviously the opportunities for revenue in each one of those occasions,” Laguarta also said.

The smaller cans not only have higher margins but also attract “consumers who occasionally like to ‘indulge’ even while preferring healthier options in the long term,” Reuters’ Nivedita Balu observes .

“Core Pepsi is what is driving the improved performance in soda. You have the consumer shifting from bigger volume packages into packages that are smaller … but the price realization is quite good on them,” PepsiCo CFO Hugh Johnston tells Balu.

“Revenue in its snacking division, Frito-Lay North America, rose 4.5%, led by high single-digit growth in convenience and dollar stores, pushing total net revenue up 2.2% to $16.45 billion,” Balu also reports.

On the work-in-progress shelf, “Gatorade continues to struggle, analysts say. Gatorade Zero, which was introduced last year, has been expanding the consumer base for the brand, Mr. Laguarta said. PepsiCo is also launching a new sports drink called Bolt24 with more natural ingredients such as electrolytes from watermelon -- an answer to BodyArmor and its acquisition last year by rival Coca-Cola Co,” Jennifer Maloney and Kimberly Chin report  for the Wall Street Journal.

“Increased marketing spending also helped boost the company’s Quaker Oats business, including a return to volume growth for Aunt Jemima syrup and ready-to-eat cereals, the company said. Sales of those packaged foods had sagged in recent years as consumers spent less time in the center aisles of the supermarket browsing packaged foods,” Maloney and Chin add.

CFO Johnson was upbeat about the future in general in an interview with Sara Eisen and Jim Cramer on CNBC’s “Squawk on the Street” yesterday. “In the United States right now, we don’t see any sign of a consumer slowdown,” he said.

“Johnston pointed to relatively neutral gas prices year over year as one ‘particularly positive’ sign for consumer spending,” CNBC’s Amelia Lucas writes.

“When that’s the case, consumers generally feel better about themselves,” Johnson said.

“Consumer spending in April and May rose moderately, according to the Commerce Department. However, consumer confidence last month dropped to its lowest level in nearly two years,” Lucas observes. But Pepsi execs, who are in a particularly Bubly mood, can perhaps be forgiven for their exuberance.

“[Bubly is] going to be a no-plastic brand and I think that is a very good positioning that we can have for this brand going forward for the modern consumer, the millennial and the younger mother that I think is adopting this brand for her kids. … This could be one of our next $1 billion brands,”  Laguarta told analysts.

“The brand personality that the team has created there is one of the best, I think, that we’ve ever done,” Johnson tells Eisen, echoing Laguarta’s praise for the advertising that broke on the Super Bowl, as well as citing the research that went into creating the product and the field organization that’s putting in on retailers’ shelves.

“All smiles,” as one :15 for Bubly maintains.

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