NEW YORK: PepsiCo Inc is cutting jobs and closing factories to give it some “breathing room” to navigate the volatility that has permeated all corner
s of the global economy.
The maker of Pepsi-Cola, Doritos and Sun Chips said on Tuesday it plans to eliminate 3,300 jobs and shutter six plants in an effort to save $1.2bn over three years. It plans to use the savings primarily to revive lagging US soft drink sales.
“This will enable our competitiveness and give us breathing room to respond,” Chief Executive Indra Nooyi said on a conference call. “It is no news to you the economy is turbulent and there are uncertainties and volatility in every part of the environment.''
The announcement came as the global snacks and drinks company reported a 9.5 per cent drop in third-quarter profit, missing Wall Street expectations. PepsiCo also issued a downbeat profit outlook for the fourth quarter and full year, saying that the dollar's recent surge against other major currencies will hurt profits from its rapidly growing international business, which posted a 20 per cent increase in quarterly sales.
The job cuts amount to roughly 1.8 per cent of PepsiCo's global work force of about 185,000 employees, and will affect managerial and factory jobs both in and outside the US. Most will be eliminated in the coming months, Chief Financial Officer Richard Goodman said.
The second-largest US drink maker, which also owns the Frito-Lay, Tropicana and Quaker brands, said the cuts will generate savings of $350m to $400m in 2009.
“While we can't control the macroeconomic situation, we can enhance PepsiCo's operating agility to respond to the changing environment,'' Nooyi said in a statement.
In the third quarter, the company reported net income of $1.58bn, or 99 cents a share, down from $1.74bn, or $1.06 per share, a year ago. Revenue grew to $11.2bn in the most recent period from $10.17bn in the year-ago period.
Excluding one-time costs, the company earned $1.06 per share, but that still fell short of what Wall Street had expected. Analysts surveyed by Thomson Reuters, who typically exclude items from estimates, expected earnings of $1.08 per share on revenue of $11.2bn.
New York-based PepsiCo noted that the recent surge in the US dollar will trim fourth-quarter profit by about 4 cents to 5 cents per share. As a result, the company now expects to report 2008 earnings per share of $3.67 to $3.68, compared with prior guidance of $3.72. Analysts have forecast $3.74 per share for the full year.
“Pepsi missed consensus operating earnings, lowered full-year guidance and didn't provide a '09 outlook at this point,'' Morgan Stanley analyst Bill Pecoriello said in a note to investors. He said the negative results would likely drag down the share prices of other multinational consumer products companies.
PepsiCo announced on Friday it would renew its focus on carbonated soft drinks with a marketing campaign to be launched after New Year's. That would be a reversal of its strategy to move away from soda and toward more expensive alternatives, such as sparkling juice, energy drinks and ready-to-drink teas.
Goodman, the CFO, said the company had been planning the campaign over the last several months as a response to the consistent declines in sales volume in the US.
“We're looking at re-engaging consumers, keeping the ones we have and making sure we're getting additional consumers into the fold,'' Goodman said, adding that a lot of carbonated soft drinks “are very affordable.''
The company's PepsiAmericas Foods division reported a 12 percent rise in revenue. But sales growth at PepsiAmericas Beverages, which sells drinks in the US and Latin America, was flat with a 2.5 percent decline in the volume of drinks sold. Sales of carbonated soft drinks fell 3 percent in North America.
Bottled water sales volume slid by double-digits as consumers drank more tap water. `”Water has kind of run its course,'' Edward Jones analyst Jack Russo said. “So they won't be able to rely on that anymore.'' But he added, “This is still a very good company, it's very well-managed, the balance sheet is in great shape.''
Responding to questions from investors about credit availability, CFO Richard Goodman said PepsiCo had a high credit rating as well as cash and credit lines available.
“In the current circumstances, neither us nor the bottlers have experienced any issues so far,'' Goodman said.
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