Grow the core and add more: PepsiCo reports Frito-Lay profit up 6%

11-Feb-2016 - Last updated on 11-Feb-2016 at 17:23 GMT

Frito-Lay operating profit has risen 6% year on year

Frito-Lay has benefited from improved productivity and lower commodity costs in the past 12 months, PepsiCo has reported in its full-year results.

The Frito-Lay North America division has today (February 11) announced net revenue up 2% year on year to $14.8bn in the 12 months to December 26, 2015, with operating profit up 6% to $4.3bn.

Across the PepsiCo business, reported revenue was down 5% year on year to $63bn, which the company said was a result of a 10 percentage-point unfavorable impact from foreign exchange, with organic revenue up 5%.

Overall operating profit fell 13% year on year to $8.4bn, which was a result of factors including foreign exchange and remeasurement of the company’s Venezuelan businesses, with constant currency operating profit up 6%.

Consistent performance

Speaking to investors today, PepsiCo said the performance of the Frito-Lay business had been “remarkably consistent”, with growth of around 2% volume, 4% revenue and 6% profit for the past four or five years, and that it expected that to continue.

“The reason Frito-Lay does as well as it does is that it can take in occasions from across the snacking categories,” said PepsiCo chairman and CEO Indra Nooyi. “Frito is able to go after crackers, after sweet occasions; we ave a frying platform, we have a baking platform.”

“That’s what creates an advantage model in Frito-Lay.”

“Remember the strategy of ‘Grow the core and add more’ – we are looking at the demands of consumers and seeing how we can meet them with a Frito-Lay offering,” she added.

Promotional shift

PepsiCo said that shifting promotional activity away from what it called XXL size packs to smaller XL bags had been “quite successful” at increasing penetration in smaller households.

Less successful over the full year has been PepsiCo’s Quaker Foods North America division, with full-year net revenue down 1% to $2.5bn and profit down 10% to $560m. The company said the division had been hit by impairment charges related to a dairy joint venture, operating cost inflation, higher advertising and marketing expense and the lapping of a gain associated with the divestiture of a cereal business in the prior year.

Met every goal

In a statement on the performance of the overall PepsiCo business, Nooyi said she was “happy to report we met or exceeded every financial goal we set for 2015, demonstrating consistent performance in the face of volatile macros.”

She added the PepsiCo portfolio had been “strategically designed to weather the current macroeconomic challenges.”

“Our results reflect the balance of our brand portfolio, geographic footprint, consistent marketplace execution and a relentless focus on productivity,” she said, adding that investment for the future included product innovation and supply chain, and increased advertising and marketing expense.

"Looking ahead to 2016, we expect solid financial performance despite expected continued macroeconomic challenges, particularly in certain key developing and emerging markets,” she added.