PepsiCo to Increase Ad Spending $600 Million

Steve’s breakdown: $600 million in additional spending going to 12 key brands including Pepsi, Lay’s, Mountain Dew, Gatorade and Tropicana might not guarantee agency relationship changes. But I take notice when the CEO says “Running a large company is like doing a car race, occasionally you have to stop and refuel yourself in the pit stop, and that is what we’re doing in 2012.”  It’s time to start sniffing around PepsiCo.

PURCHASE, NY: PepsiCo Inc. plans to cut 8,700 jobs and boost marketing spending for its brands by as much as $600 million as Chief Executive Officer Indra Nooyi works to turn around the world’s largest snack-food maker.

The job cuts, which represent about 3 percent of PepsiCo’s global workforce, and other measures may save about $1.5 billion by 2014, the Purchase, New York-based company said today in a statement.

Nooyi is working to boost U.S. beverage sales and regain market share from Coca-Cola Co., the world’s largest soft-drink maker. Profit this year will decline about 5 percent on a constant-currency basis and then increase at a high single-digit percentage rate starting in 2013, PepsiCo said.

The “cost savings projections are encouraging, although 2012 will be a negative EPS growth year, which isn’t what investors like to hear typically,” Ali Dibadj, an analyst at Sanford Bernstein & Co. in New York, said today in an e-mail.

PepsiCo fell 4.3 percent to $63.87 at 9:57 a.m. in New York. The shares rose 1.6 percent last year, while Coca-Cola gained 6.4 percent.

Fourth-quarter net income advanced to $1.42 billion, or 89 cents a share, from $1.37 billion, or 85 cents, a year earlier, PepsiCo said in a separate statement. Excluding some items, profit was $1.15 a share, beating the $1.12 average of analysts’ estimates compiled by Bloomberg.

Sales climbed 11 percent to $20.2 billion. Analysts’ average estimate was $20 billion.

Marketing Spending

Most of the increased marketing will go to 12 key brands, including Pepsi trademarked soft drinks, Lay’s, Mountain Dew, Gatorade and Tropicana, Nooyi told investors at a meeting in New York today. A new global advertising campaign for the company’s flagship Pepsi-Cola will start this spring, Nooyi said.

An additional $100 million will be spent on display racks and delivery routes, the company said. PepsiCo said benefits from the higher marketing outlays increasingly will be seen in the second half of 2012.

“Running a large company is like doing a car race,” Nooyi, 56, said today in an interview on Bloomberg Television. “Occasionally, you have to stop and refuel yourself in the pit stop, and that is what we’re doing in 2012.”

Massimo d’Amore will step down from his job leading the global beverages unit on Feb. 29 and retire from the company about a year later, PepsiCo said today in a filing. D’Amore was key in rebranding Pepsi-Cola, Tropicana and Gatorade in recent years. He also was involved in a remake of Tropicana’s packaging in 2009 that later was reversed after customers complained.

Not Splitting

PepsiCo also said it is committed to remaining an integrated food-and-beverage company. Analysts including Dibadj had suggest PepsiCo’s food and drinks business may be worth more separate than together.

The company said it will work to boost shareholder value with a stock-buyback program of at least $3 billion this year and a 4 percent increase in its dividend starting with the June payment.

PepsiCo’s commodity costs will rise 7 percent this year, with much of the gain coming in the current quarter, Chief Financial Officer Hugh Johnston told investors at the meeting. Commodity cost inflation will slow as the year progresses, he said.

Commodities that are publicly traded are estimated to rise 16 percent while non-traded materials will gain about 4 percent, Johnston said. The cost to convert commodities to ingredients will fall 5 percent, he said.


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