In an effort to revive the beverage business in North America, PepsiCo Inc. (PEP) has planned to slash 8,700 jobs across 30 countries and increase advertising and marketing spending on its beverages.
As part of the restructuring plan, 3% of the global work force will be reduced, which will help the company save $1.5 billion through 2014, in addition to $1.5 billion; already in its planned saving scheme over that period.
Pepsi also estimated to raise advertising and marketing expenses by $500 million to $600 million in 2012, on its iconic brands including Pepsi, Mountain Dew, Gatorade, Tropicana, Quaker and Doritos. In addition, Pepsi plans to spend about $100 million for the improvement of its delivery and display racks. The increase in advertising expenditure will not only boost its brands, but will also help the company in getting the market share sacrificed for healthier products, such as hummus and drinkable oatmeal.
In addition, Pepsi intends plans to consolidate its manufacturing, warehouse and sales facilities, and focus more on increasing net return on invested capital by at least 50 basis points annually, starting in 2013. Pepsi has also planned to cut its capital expenditures by 10% in 2012.
The company also announced a 4% increase in its annual dividend and an enhancement in its share buyback program.
Pepsi and many other food and beverage makers are facing rising material costs, which are used to package and transport their products, including sugar, corn and aluminum. To combat the higher input costs, these companies have also raised prices in 2011. However, this price rise step couldn’t help the companies. Therefore, the companies have moved on with their cost-cutting plan.
Pepsi has already undertaken a $383 million restructuring charge in the fourth-quarter of 2011, and expects another $425 million charge in 2012 and yet another $100 million from 2013 to 2015. Pepsi’s rival The Coca-Cola Co. (KO) also announced its own cost-cutting program, though it did not attempt to reduce its workforce.
The New York-based company reported core earnings of $1.15 per share, up 9% in the fourth quarter compared with last year’s $1.22. The earnings per share surpassed the Zacks Consensus Estimate by 2 cents. The higher earnings were driven by robust revenue growth across its product portfolio. Further, strong pricing partially offset the commodity cost inflation.
The fiscal 2011 core earnings climbed 7% to $4.40, which surpassed the Zacks Consensus Estimate by a penny.
Pepsi also reported growth in volume, revenues, operating profit and earnings per share, fueled by top-line gains across its worldwide snacks and beverage businesses and from the acquisition of Wimm-Bill-Dann, the leading dairy and Juice Company in Russia.
However, the company expects a decline in its fiscal 2012 earnings by 5%, along with the additional 3 percentage point decline from foreign exchange rates. Moreover, the company faces strong headwinds with global macroeconomic uncertainty and rising commodity costs.
Currently, we prefer to be Neutral on Pepsi. Furthermore, it holds a Zacks #4 Rank, which translates into a short-term Sell rating.
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