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PepsiCo : Health Push Backfires on PepsiCo -- WSJ

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10/05/2017 | 08:48am CET
By Jennifer Maloney 

This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (October 5, 2017).

PepsiCo Inc., attempting to diversify its beverage portfolio with less sugary drinks, shifted too much shelf space and marketing money away from its main soda brands in the third quarter, causing a drop in North American sales, company executives said.

The Purchase, N.Y., company's North American beverage unit posted weaker-than-expected results, with sales down 3% to $5.3 billion and profit falling 10%.

PepsiCo this year shifted resources away from its namesake cola and Mountain Dew toward new products such as its premium bottled-water brand, LIFEWTR, and a sparkling lemonade called Lemon Lemon, finance chief Hugh Johnston said in an interview Wednesday.

But those brands weren't big enough to compensate for the resulting drop in market share for Pepsi and Mountain Dew. Gatorade sales also fell, hurt by weak convenience-store sales and cooler weather compared with the previous two summers.

"We're on a multiyear journey to move people to healthier products, to lower-calorie options," Mr. Johnston said. "You're always sort of managing your pacing. How quickly will consumers change their habits?"

He added: "We just got ahead of our skis a little bit."

The company's namesake colas, including Diet Pepsi and other Pepsi-branded sodas, accounted for 12% of its revenue in 2016. PepsiCo aims by 2025 for two-thirds of its global beverage portfolio volumes to contain fewer than 100 calories from added sugar per 12-ounce serving. Currently 40% of its beverage volumes meet that standard.

In the third quarter, PepsiCo's beverage volumes fell 6% in North America and 1% globally.

Chief Executive Indra Nooyi called the North American beverage results "a toe stub" and said the company has made "a few course corrections," reallocating shelf space and marketing spending back to Pepsi and Mountain Dew.

"We have a good handle on what happened," she said on a conference call with analysts, adding that she expects the North American beverage business to return to growth.

Overall, PepsiCo's net income rose 8% to $2.14 billion, compared with $1.99 billion a year earlier. Revenue inched up 1% to $16.24 billion.

PepsiCo shares fell 0.3% to $108.77 in morning trading.

Write to Jennifer Maloney at [email protected]

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