PepsiCo CEO Ramon Laguarta emphasized that the soft drink maker has “been investing a lot in R&D” and believes its “pipeline is strong” during Tuesday’s third quarter call with investors and analysts.
“I would say our pipeline in 2021 was very strong,” he said. “We’re seeing the return from that innovation across the world. We’re trying to be much more local, much more mid-term and long-term, much more incremental in the way we think about our innovation.”
In August, PepsiCo announced it would launch an alcoholic Hard MTN Dew flavored malt beverage (FMB) line, made in collaboration with Boston Beer Company. The new products, which have a 5% ABV and are available in original, Black Cherry and Watermelon flavors are set to launch next year.
During the call’s Q&A session, Laguarta said PepsiCo opted to create its own integrated distribution network for the line in order to centralize operations and “make coordinated decisions across multiple states from one decision point.”
“And that could be, I think, competitively advantaged,” he said.
“We’re starting with a number of states where we have the license to operate, and we will take it from there,” he continued. “We feel optimistic, we think it will be very incremental. It would help us with the drop size. It will help us with the economics of their routes eventually. We think the same as we’re doing with the chilled distribution system, that is … unique and it covers the whole country, we think we could eventually envision a distribution system that can be … integrated on the low alcohol part of our portfolio as well.”
PepsiCo’s foray into distribution via its Blue Cloud platform was among several issues raised during the National Beer Wholesalers Association’s annual meeting this week in Las Vegas.
“Questions related to public health, the Beer Institute’s Advertising and Marketing Code and federal and state trade practices, as well as three-tier requirements will need to be addressed,” NBWA president and CEO Craig Purser said during Monday’s opening session. “But clearly, the folks at Pepsi want what you’ve got.”
PepsiCo believes MTN Dew will provide “a differentiated flavor with a very unique brand” into what is a “relatively crowded market” for malt beverages, stating that it is “clearly a space where we should be playing,” Laguarta said.
Despite a “volatile supply chain and cost environment,” PepsiCo reported double-digit growth in its Q3 earnings report today, with net revenue in the quarter up 11.6%.
According to the company, organic revenue was up 9% in the third quarter. Earnings per share (EPS) was $1.60, down 3%, while core EPS was $1.79 (up 5.5%). Year-to-date, the company reported net revenue up 13.2% and organic revenue up 8.4%. In a release, Laguarta said the company now anticipates full-year organic revenue to increase about 8%.
“Our strong year-to-date results demonstrate that the investments we have made towards becoming a faster, stronger, and better company are working,” Laguarta said in prepared remarks. “We are extremely pleased with the progress we are making on our strategic agenda, and remain committed to the investments in our people, supply chain, plants, go-to-market systems, and digitization initiatives to build competitive advantages and win in the marketplace.”
PepsiCo Beverages North America revenue was up 7% in Q3, while Frito-Lay North America revenues rose 6% and Quaker Foods North America was up 2%. Latin America revenues increased 27%; Africa, Middle East and South Asia rose 33%; Asia Pacific, Australia and New Zealand and China jumped 27%; and Europe grew 9%.
Operating profit was PepsiCo Beverages North America increased 11%, while Frito-Lay was flat and Quaker Foods operating profits fell 27%. Around the world, operating profits were up double digits everywhere except Europe, where they declined 8%.
In prepared remarks, the company noted that the MTN Dew brand has driven market share in the carbonated soft drink space, while PepsiCo also gained share in the RTD tea and water categories. The LIFEWTR, Bubly and Aquafina brands all posted double-digit net revenue growth in the quarter, while Pepsi saw high single-digit growth and Starbucks drinks were up mid-single-digits.
The company said it will continue to invest in its Zero Sugar product portfolio, which includes Pepsi, MTN Dew and Gatorade brands, and is also working to improve its performance in the energy category through products like MTN Dew Rise and the repositioning and relaunch of Rockstar.