There are a lot of positives to take from PepsiCo's (NYSE:PEP) latest quarter. Revenues decreased 1.8% y/y but it was because of FX, which had a -3% impact on growth. Organic revenues increased 4.3% and the strength was broad-based: all segments posted positive organic growth with the exception of Quaker Frito Lay North America (-2%). At the same time operating profit margin expanded, despite a 65 bps increase in advertising and marketing expense rate thanks to productivity enhancements, which management expects will result in $1 billion of cost savings for the full year. Core EPS, adjusted for last year's impairment charge related to the Venezuela business, grew 4% (7% in constant currency).
PEP grew organic volumes 3% in global snacks, and 2% in global beverages, and delivered positive net price realization to boot. These are impressive figures when you consider the secular shift towards healthier diets and declining snack and soda consumption levels. PEP has combated these headwinds by focusing on healthier foods and shifting the beverage portfolio to non-carbonated beverages. The strategy is working, and organic revenues increased 8% in developed and emerging markets. Markets such as China, Mexico, and Brazil, where healthy diets are less of a concern, grew in the double digits.
