report today from a Wells Fargo analyst continues to highlight the importance of Plano-based Frito-Lay to the finances of parent company PepsiCo.As the nation’s second largest soft drink maker (behind Coke) continues to try to breathe new life into the carbonated soft drinks category, soda sales continue to slip. That leaves PepsiCo, based in Purchase, N.Y. ever more reliant on the maker of Lay’s and Doritos.
PepsiCo’s “negative sales trends remain a concern, as the company continues to rely on snacks to offset a challenged beverage business,” said Bonnie Herzog, managing director of beverage, tobacco & convenience store research for Wells Fargo Securities.
Analysts regularly pepper top PepsiCo management with questions about splitting apart the two businesses to “unlock shareholder value.”
The section of Herzog’s report on PepsiCo begins with the headline: “PEP Snacks Continue to Support Struggling Beverage Platform.”
Quoting Nielsen scanner data for the four weeks that ended May 11, Herzog said total company sales (measured in dollars) decreased by 0.3 percent vs. a decline of 0.2 percent in the previous month.
While sales were up 0.2 percent compared with the same period last year, “this represents the lowest growth number in the past 9 months,” she said.
Total carbonated soft drink sales, excluding energy drinks, fell by 3.7 percent, compared with a 5.0 percent drop a year ago. A 6.6 percent drop in sales volume (the amount sold) was mitigated by a 3.1 increase in pricing, “as PEP continues to raise prices with its ‘hybrid everyday value’ pricing strategy,” she said.
Bottled water also continues to struggle — down 14.7 percent, following last month’s 15.7 percent decline, she said.
“Snacks continue to support the overall platform, posting strong 3.9 percent growth led by the Lay’s brand, well above the one year average of 2.5 percent growth.
Up the street from Frito-Lay, at Dr Pepper Snapple Group, the third largest soft drink maker gained market share in both regular and low calorie soft drinks. The company has been aggressively marketing its new Ten line of soft drinks with 10 calories per can.
Herzog estimates that the Ten line, including Dr Pepper and 7Up, contributed $8 million to $10 million in sales during the month.
Dr Pepper Snapple “posted the best unit sales performance of its peers in the low-calorie [carbonated soft drink] segment, which we believe is largely due to its Ten platform, and a sign of future potential once the platform is fully launched,” she said.
