USD17.44bn Net Revenue for the Frito Lay North America International Operations

Recently, PepsiCo reported quarterly earnings and revenue. The net revenue for Frito Lay North America’s international operations (FLNA) Q3 36 weeks ending at 09.09.2023 versus 09.09.2022 is USD17,441bn versus USD15,583bn.

For the FLNA, the Q3 36 weeks net revenue grew 12%, primarily driven by effective net pricing, according to the quarterly report recently published.

“Unit volume increased slightly, primarily driven by mid-single-digit growth in trademark Doritos and double-digit growth in Sunchips, partially offset by a high-single-digit decline in dips and a low-single-digit decline in trademark Lay’s. Operating profit increased 13%, primarily reflecting the effective net pricing and productivity savings. These impacts were partially offset by certain operating cost increases, including strategic initiatives, an 11-percentage-point impact of higher commodity costs, primarily cooking oil, potatoes, and seasoning ingredients, and higher advertising and marketing expenses,” PepsiCo analysts revealed.

LatAm’s Operating Profit Offset by Last Year’s Potato Prices

The Latin America businesses (LatAm - includes all of the company’s beverage and convenience food businesses in Latin America) 36 weeks Q3 report shows that the net revenue increased 20%, primarily reflecting effective net pricing and a 9-percentage-point impact of favorable foreign exchange, partially offset by a net organic volume decline.

Convenient foods unit volume declined 3%, primarily reflecting a double-digit decline in Colombia. Additionally, Mexico and Brazil each experienced low-single-digit declines.

“Operating profit increased 28%, primarily reflecting the effective net pricing, productivity savings, and an 8-percentage-point favorable impact of impairment and other charges associated with the sale of certain non-strategic brands compared to the prior year. These impacts were partially offset by certain operating cost increases, a 14-percentage-point impact of higher commodity costs, primarily potatoes, grains, and other ingredients, the net organic volume decline, higher advertising and marketing expenses, and a 4-percentage-point unfavorable impact of certain indirect tax credits in Brazil compared to the prior year. Favorable foreign exchange contributed 11 percentage points to operating profit growth,” the company’s representatives mentioned in their report.

Europe’s Operating Profit Also Offset by the 2022 Potato Prices

PepsiCo’s Europe businesses (including all of the company’s beverage and convenience food businesses in Europe) reveal that the Q3 36 weeks net revenue increased 7%, primarily reflecting effective net pricing, partially offset by a 7-percentage-point impact of unfavorable foreign exchange and a net organic volume decline.

Convenient foods unit volume grew slightly, primarily reflecting high-single-digit growth in Russia and double-digit growth in Turkey, partially offset by a high-single-digit decline in the United Kingdom, a double-digit decline in Spain and low-single-digit declines in France and the Netherlands.

“Operating profit improvement primarily reflects the favorable impact of prior-year charges associated with the Russia-Ukraine conflict and impairment of intangible assets related to the repositioning or discontinuation of certain juice and dairy brands in Russia (brand portfolio impairment charges), the effective net pricing, productivity savings, a 5-percentage-point favorable impact from an insurance recovery and a 4-percentage-point favorable impact of higher payments to employees in the prior year for a change in pension benefits. These impacts were partially offset by the unfavorable impact of the prior-year gain associated with the Juice Transaction, certain operating cost increases, higher restructuring and impairment charges, and a 52-percentage-point impact of higher commodity costs, primarily sweeteners, potatoes, and other ingredients. Additionally, operating profit improvement was reduced by higher advertising and marketing expenses and the net organic volume decline. Unfavorable foreign exchange reduced operating profit improvement by 13 percentage points,” PepsiCo’s experts said.

Using Automation and Portfolio Transformation to Revolutionize the Business

According to the October 10th PepsiCo, Inc. Q3 2023 earnings call transcript, Ramon Laguarta, PepsiCo’s Chairman and Chief Executive Officer, the company continues to drive the transformation of the business with automation at the center of it and digitalization as well.

“With digitalization, we're trying to give much more precision to our decision-making across everything we do from how we talk to consumers, to how we invest in our pricing with our customers. How do we run our end-to-end operations from agro to the consumers? How we run our routing and everything all these activities that we do to generate value for our consumers. That is an investment we've been making over time. And we continue -- that still is the priority of the company to make the company more precise on intelligence and empower our front line to make better decisions all the time with the best information possible real-time and ideally forward information. So that is a continuous investment,” Laguarta declared.

PepsiCo’s CEO also talked about the customer’s concerns in the market around the adoption of GLP-1 drugs and the potential impact on the beverages and snacks businesses. Laguarta replied that he sees urbanization as a big driver of the adoption of PepsiCo’s categories.

“We're seeing middle-class development. We're seeing the lifestyle and the people snacking to eat, some meals becoming more mini-meals and much more unstructured during the day, being a big driver of our categories, both beverages and snacks. So we're seeing a lot of tailwinds that will continue to drive our categories. Of course, we're observing the growth of these new drugs and their potential impact. The other thing we're looking at is our strategy sound when it comes to portfolio transformation. And everything we've been doing for the last five, six years when it comes to reducing sodium, reducing fat, reducing sugar, reducing the portions of our products, adding some new cooking methods to our snacks, those are all very positive trends that will help us pivot the portfolio if needed in the future. We'll continue to do it. It's one of our key strategic pillars. So again, negligible impact today, a lot of these structural trends that are in our category, I think, remain very solid, and even we see them accelerating. And our portfolio strategy, we think, is very solid when it comes to potential protection against some of these future developments 5, 10 years from now,” he concluded on the subject.

While PepsiCo’s financial results in the U.S. and Canada (North America) are reported on a 12-week basis, all of its international operations are reported on a monthly calendar basis for which the months of June, July, and August are reflected in the company’s results for the 12 weeks ended September 9, 2023, and September 3, 2022, and the months of January through August are reflected in its results for the 36 weeks ended September 9, 2023, and September 3, 2022.