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PepsiCo tweaks discount


October 14, 2009
By Emily Fredrix | Associated Press

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Oct. 14, 2009 – Consumers will remain focused on low prices even when
the recession ends, soft drink and snack maker PepsiCo Inc.

Oct. 14, 2009 – Consumers will remain focused on low prices even when the recession ends, soft drink and snack maker PepsiCo Inc. says that it's creating new products at lower prices and plans to continue offering discounts in its Frito-Lay and beverage businesses.

The effort seems to be working for PepsiCo's Frito-Lay business, which posted revenue and volume gains in the third quarter. But the beverage business, with brands like Pepsi cola, continued to slump as consumers cut their spending and continued switching to healthier juices and teas.

Overall, the Purchase, N.Y.-based company said its fiscal third-quarter profit rose 9 per cent, thanks in part to cost-cutting, even as revenue slipped 1 per cent.

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Chief Financial Officer Richard Goodman said PepsiCo has been offering more promotions at the end of each month, when consumers' budgets become more constrained. For instance, bags of chips may be promoted at two for $5 early in the month but fall to $2 each by the end of the month.

"We want to be able to make sure that at the beginning of the month or at the end of the month, they're buying our products," Goodman told reporters.

Consumers are so focused on cost they are willing to forgo getting more for a given price. PepsiCo's promotion to boost volume with no price increase on certain chips, failed to gain traction and will be phased out, Goodman said.

Companies in all consumer categories are offering more discounts amid the recession, and they have to be careful not to let that eat into their profits, said Edward Jones analyst Jack Russo. Food companies are able to do this because their ingredient costs have fallen. Russo warned that consumers will keep expecting discounts for a long time.

"The challenge is, once you give them a really good deal, so to speak, they'll be expecting that a lot more often,'' he said. "That's the challenge for these companies, getting in the promotional and discounting game but not getting too crazy with promotions.''

He said PepsiCo's performance was strong in the quarter and the company was not doing too many promotions.

PepsiCo earned $1.72 billion, or $1.09 per share, in the three months that ended Sept. 5. That's up from the $1.58 billion, or 99 cents per share, a year earlier.

The profit beat the average expectation of analysts polled by Thomson Reuters, whose estimates typically exclude one-time items; they forecast profit of $1.03 per share.

But sales slipped 1 per cent to $11.08 billion from $11.24 billion, falling short of Wall Street's $11.25 billion estimate. Shares fell 78 cents, or 1.3 per cent, to close at $60.39 Thursday.

PepsiCo saw strength abroad, as sales grew at PepsiCo's International and Asia, Middle East and Africa divisions.

PepsiCo expects its $7.8 billion buyout of its two largest North American bottlers to close by the end of 2009 or early 2010.

PepsiCo reaffirmed its guidance for fiscal 2009 that earnings per share will grow by a percentage in the mid-to-high single digits, if currency stays constant.