PepsiCo beverage sales signal gradual recovery, shares rise

(Reuters) - PepsiCo Inc's PEP.O better-than-expected quarterly results on Tuesday pointed to signs of a gradual recovery in its struggling soda business as the company doubled down on efforts to promote colas, setting shares up for their best day in seven years.

The company’s North America beverages sales fell 0.9 percent - its smallest drop in four quarters - as the company went “toe-to-toe” with rival Coca-Cola in marketing and pricing and launched a campaign to revive soda sales.

Chief Executive Officer Indra Nooyi has been trying to popularize the company's trademark colas amid intense competition from Coca-Cola Co KO.N and as consumers opt for healthier drinks.

Demand for its zero sugar Pepsi and diet Pepsi were “flying off the shelves,” Nooyi said in a post earnings call with analysts.

“Every part of our business in North American Beverages is showing sequential improvement,” Nooyi said. “As we go into the third quarter, we feel good about the trend rate.”

PepsiCo’s net revenue rose 2.4 percent to $16.09 billion, of which $5.19 billion came from its beverage business and beat Wall Street expectations.

“There were some concerns the sales were going to be lackluster and instead we saw some solid improvements,” Edward Jones analyst Brittany Weissman said.

“(PepsiCo) did seem like that they are starting to see some sort of inflection point in the (beverages) results.”

Sales at Frito-Lay North America, its biggest business, grew for the second straight quarter, rising 4.3 percent on the back of higher sales of its newly launched products Doritos Blaze and Ruffles Mozzarella and Marinara.

The company has been ramping up its snacks offering to overcome its sluggish beverage sales by introducing products with new flavors, healthier preparation methods and attractive packaging.

Pepsi’s overseas markets also grew with organic revenue rising 7 percent in Europe Sub-Saharan Africa and 6 percent in Asia, Middle East & North Africa.

Net income attributable to the company fell about 14 percent to $1.82 billion, in the second quarter ended June 16, mainly due to higher costs for transportation and raw materials.

To offset these impacts, Pepsi cut costs across the board and refranchised its Thailand beverage operations.

Excluding items, Pepsi earned $1.61 per share, topping analysts’ estimate of $1.52 per share, according to Thomson Reuters I/B/E/S.

Pepsi also played down the impact of tariffs imposed by the United States on aluminum imports, saying it so far was “immaterial”.

Shares of the company were up 3.7 percent at $111.78 in morning trading.

Reporting by Aishwarya Venugopal in Bengaluru; Editing by Sweta Singh and Arun Koyyur