PepsiCo says snacks to ease, not cure its lockdown blues

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(Reuters) – PepsiCo Inc (PEP.O) warned on Tuesday organic revenue and operating profits would suffer in the second quarter as major buyers of its sodas, such as restaurants, theaters and stadiums, were forced to shut down to help control the spread of the coronavirus.

FILE PHOTO: Pepsi products are displayed in a supermarket in New York City, U.S. February 15, 2017. REUTERS/Brendan McDermid

The group beat first quarter revenue estimates helped by a late spike in demand from consumers stocking up on the company’s chips, snacks and cereals to make it through lockdowns, but said it expected second-quarter organic sales to decline at a low single digit rate.

The warning mirrored that of rival Coca-Cola Co’s (KO.N), last week, which said volumes had fallen 25% globally since the beginning of April, largely stemming from the loss of sales other than at retail stores.

Still, the snack and beverage maker said it expected for business at grocery stores to make up for a large chunk of those lost sales, with shoppers expected to keep stockpiling food and drinks due to uncertainty how long stay-at-home orders would last.

Analysts said Pepsi’s more diversified snacks business, which includes Lay’s and Doritos, makes it better placed to benefit from sales at retail outlets than rival Coca-Cola Co (KO.N).

“With consumers spending more time at home, we’ve seen a increase in eating breakfast and a tendency to snack more during the day,” said PepsiCo’s Chief Executive Officer Ramon Laguarta.

“Our Frito-Lay and Quaker Food businesses are well positioned to capitalize on these changes.”

The company’s finance chief Hugh Johnston also stressed the group was less exposed than Coca-Cola to the part of the market hit the hardest by the lockdowns.

“Compared to our biggest competitor in beverages, they clearly have higher market share in away from home channels- restaurants, movie theaters and the like,” Johnston told analysts.

PepsiCo also said it still expected to pay $5.5 billion in dividends and buy back shares worth $2 billion this fiscal year, signaling financial stability at a time when several blue-chip firms have suspended shareholder returns to preserve cash.

PepsiCo’s net revenue rose 7.7% to $13.9 billion in the quarter ended March 21, beating analysts’ estimates of $13.21 billion, also helped by a massive advertising campaign during the Super Bowl.

However, the company ditched its full year forecast over uncertainty related to the pandemic.

Excluding one-time items, Pepsico earned $1.07 per share, beating estimates of $1.03, according to Refinitiv IBES data.

Reporting by Uday Sampath in Bengaluru; Editing by Patrick Graham and Tomasz Janowski

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