* Q4 adj EPS $1.15 tops Wall St view of $1.13/share
* Targets incremental savings of $1.5 bln over 3 years
* Global Beverage Group chief Massimo d'Amore to retire
* Plans to cut 8,700 jobs
* Shares down 3.7 pct
By Martinne Geller
Feb 9 PepsiCo Inc Chief Executive
Indra Nooyi laid out a plan to turn around the company's North
American soft drink business that includes ramping up
advertising, cutting 8,700 jobs and a bigger-than-expected
decline in near-term earnings.
Nooyi, whose 5-year tenure has been marred by the global
financial crisis, recession and unprecedented commodity
inflation, also took responsibility for a series of management
missteps - from under-investing in some brands to over-promising
"Anytime you make a mistake ... it's the CEO's
responsibility," Nooyi told reporters after a much-anticipated
meeting with investors on Thursday. "The buck stops with me."
Nooyi has come under pressure from Wall Street for a
stagnant stock price and a lagging North American beverage
business. She has been criticized for taking her eye off the
core business of sodas to expand into healthier products, such
as hummus and drinkable oatmeal.
Analysts agreed that the steps were needed to boost drink
sales, including Pepsi-Cola, Sierra Mist soda and Tropicana
juice, and stem the decline in U.S. market share against
archrival Coca-Cola Co.
"Resetting the earnings base in 2012 is the right thing to
do for the long-term health of the business," said Consumer Edge
Research analyst Bill Pecoriello. "Now the key will be the
effectiveness of the execution and stepped-up spending."
PepsiCo shares, which gained nearly 4 percent in the weeks
leading up to Thursday's meeting, closed down 3.7 percent at
$64.27 on the New York Stock Exchange, as investors adjusted to
a new, lower earnings base and the fact that the promised
improvement will not be immediate.
"The company has great brands and wonderful overseas
presence, but investors want points on the board sooner rather
than later," said Edward Jones analyst Jack Russo.
Still, not everyone on Wall Street was convinced the plan
"We do not believe that the key elements of today's
announcement will fully satisfy investors' expectations," said
Wells Fargo analyst Bonnie Herzog. "Moreover, commentary from
the meeting confirms our long-standing view that PepsiCo's
turnaround is a multi-year initiative."
The company also reported higher-than-expected
PepsiCo, based in Purchase, New York, expects to cut 8,700
jobs, or 3 percent of its global workforce, across 30 countries
as part of a plan to save an extra $1.5 billion over the next
It also plans to increase advertising and marketing by $500
million to $600 million this year, centered on 12 brands,
including Pepsi, Mountain Dew, Gatorade, Tropicana, Quaker and
Doritos. It will spend an additional $100 million this year to
improve delivery and display racks.
As a result, earnings in 2012 will decline 5 percent from
2011, the company said. It forecast an additional 3 percentage
point hit from foreign exchange rates.
That suggests reported 2012 earnings of $4.05 per share,
according to Barclays Capital analyst Michael Branca, below Wall
Street estimates of $4.55 per share.
"We expect the stock to establish a new floor today at the
low to mid $60s," Branca said in a research note.
"Higher-quality EPS along with the right strategic decisions, we
think, will garner a higher multiple for PepsiCo."
James Tierney, chief investment officer at W.P. Stewart said
it will take three to four quarters before it becomes clear
whether the plan is working.
"The positive is they are doing something. More ad spending
is a positive and costs cuts are encouraging," he said.
The cost cuts, which will also include consolidating
manufacturing and warehouse facilities, should result in savings
of $1.5 billion by the end of 2014, in addition to $1.5 billion
in already planned savings over that period.
PepsiCo also announced a 4 percent increase in its annual
dividend and an increase in its share buybacks, forecasting at
least $3 billion in repurchases.
PepsiCo plans to increase its ad budget as a percentage of
sales, a measurement that has historically lagged Coke's. It
plans to reduce its capital expenditures as a percent of sales
and said it will shrink the number and size of tuck-in
acquisitions it makes.
The company also said the chief of its Global Beverage
Group, Massimo d'Amore, would retire. The company recently named
former Frito-Lay chief Albert Carey to run the business.
The company will also streamline its portfolio, either
turning around or divesting underperforming businesses.
PepsiCo reported a fourth-quarter profit of $1.42 billion,
or 89 cents per share, up from $1.37 billion, or 85 cents per
share, a year earlier.
Excluding items, PepsiCo earned $1.15 per share, topping
analysts' average estimate of $1.13 per share, according to
Thomson Reuters I/B/E/S. Revenue rose 11 percent to $20.2
Looking forward, the company expects a 7 percent increase in
the cost of commodities this year, adding that it does not
expect to be able to offset the full magnitude of that rise with
For 2013, PepsiCo expects earnings to increase at a high