NEW YORK (AP) — PepsiCo Inc. should provide a snapshot of how it’s balancing rising costs for ingredients with its push to strengthen its brands when it reports its second-quarter results on Wednesday.
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WHAT TO WATCH FOR: The Purchase, N.Y.-based company has warned that sales volumes of its many food and drinks may take a hit this year as a result of price hikes, which it says are needed to offset rising costs for corn, aluminum and packaging material. Overall, the company expects commodity costs to climb 7 percent this year.
To help defray expenses, the company is implementing a cost-cutting program that it says will save it $1.5 billion by 2014. But the upfront price tag for the measures, which includes a 3 percent reduction of its workforce, will result in charges of about $425 million this year.
Keeping expectations in check, the company has set a lower bar for itself, noting that it expects its full-year adjusted net income to fall by 5 percent.
WHY IT MATTERS: PepsiCo’s brands include Tropicana, Gatorade and Quaker Oats. Its Frito-Lay unit makes it the world’s biggest salty snacks company.
Yet its flagship soda has lost market share to The Coca-Cola Co. in recent years; Pepsi is now the No. 3 soda in the U.S., after Coke and Diet Coke, according to the industry tracker Beverage Digest. As part of a company “reset” announced earlier this year, PepsiCo plans major marketing campaigns to rejuvenate the image of its soda.
The mixed performance of its various brands has prompted calls by investors for PepsiCo to split up its soda and food businesses. But executives earlier this year seemed to extinguish talk of such a split with its “Power of One” marketing campaign, which features pairings such as a can of Pepsi with a bag of Lay’s chips. The company is betting that the popularity of its salty snacks can give its sodas a boost.
WHAT’S EXPECTED: Analysts on average expect an adjusted profit of $1.09 per share on revenue of $16.62 billion, according to FactSet.
LAST YEAR’S QUARTER: The company reported net income of $1.9 billion, or $1.17 a share, on revenue of $16.8 billion.
