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Jul 13, 2020

PepsiCo gains after Fritos-hungry buyers stock up on comfort

Cases of PepsiCo Inc. Pepsi brand beverages are displayed for sale at a grocery store in Louisville, Kentucky, U.S., on Tuesday, Sept. 24, 2019. PepsiCo Inc. is scheduled to release earnings figures on October 3. Photographer: Luke Sharrett/Bloomberg

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PepsiCo Inc. reported a stronger-than-expected spring as homebound consumers looking for comfort stocked up on snack foods -- and its current-quarter forecast was even more bullish.

As COVID-19 raged across the U.S., Americans seeking out familiar flavors filled their shelves with salty, crunchy treats, driving double-digit sales growth for brands like Tostitos, Fritos and Cheetos.

Even newer snacks like fruit-chips line Bare and Off The Eaten Path, a maker of black bean and chickpea crisps, saw double-digit growth as households loaded up.

Beverage sales were one key weakness, as both in-restaurant and grab-and-go gas station sales lagged during the lockdowns.

“Our snacks and food business has performed very well, while our beverage business was challenged but continued to improve its competitive positioning,” Chief Executive Officer Ramon Laguarta said in pre-recorded remarks about the second quarter. “Consumer eating habits continue to evolve with consumers spending more time at home, which benefits the at-home breakfast, snacking and dinner occasions.”

PepsiCo shares rose 0.6 per cent at 9:49 a.m. in New York after an earlier gain of as much as 1.9 per cent. The stock was little changed this year through Friday.

As one of the first big packaged-food companies reporting results for the spring months, PepsiCo is being closely watched by investors for a look at how consumers are responding to 2020’s upheaval.

The company is well-positioned because of its high global share of the market for snack foods, according to Bloomberg Intelligence.

And snack foods, it seems, carried the North American consumer through a difficult quarter. Ruffles potato chip brand saw high-single-digit growth, while oatmeal line Quaker’s organic revenue spiked 23 per cent in the quarter.

The snack and beverage giant said it has marketing plans to retain any new Quaker customers it picked up during the quarantines.

Other packaged-food companies have been pummeled by Wall Street after reporting strong spring quarters, since investors didn’t see signs they could hold onto the gains. But PepsiCo says it’s optimistic it can capitalize on these new buying habits.

In fact, after reporting a 0.3 per cent slide in the latest period for organic revenue, a closely watched indicator of growth, the owner of the Mountain Dew and Doritos brands said that metric will turn positive in the current quarter, predicting a low-single-digit boost. The company said it still won’t make an outlook for 2020.

“As we look ahead for North America, we expect our overall business to perform well, assuming there is no large-scale disruption in economic activity or population mobility as a result of the recent surge in COVID-19 infections in many markets,” Laguarta said. “With this in mind, we expect our snacks and food businesses to remain resilient, albeit with some moderation in growth while our beverage businesses should deliver better performance during the second half of this year.”

--With assistance from Karen Lin.