February 15, 2014 in Nation/World

Pepsi to keep drinks unit despite its struggles

Candice Choi And Michelle Chapman Associated Press
 

NEW YORK – PepsiCo plans to hang on to its struggling North American drinks unit, with hopes that the introduction of naturally sweetened, lower-calorie sodas will help revive sales.

The company has been under pressure to spin off the business and focus on its stronger Frito-Lay snack unit.

The calls for a split come as PepsiCo’s drinks, which include Mountain Dew, Tropicana and Aquafina, have lost ground to bigger rival Coca-Cola Co. in recent years. U.S. soda consumption in general has been on the decline, with people worried about the calories in regular soda and the artificial sweeteners in diet sodas.

But PepsiCo said Thursday that it concluded after an “exhaustive” review involving “bankers and consultants” that its current combined snacks and drinks structure would maximize shareholder value.

“That decision has been made for a good period of time going forward,” Chief Financial Officer Hugh Johnston said.

The strength in snacks and weakness in drinks played out again in the company’s fourth quarter, with Frito-Lay delivering volume growth of 3 percent in North America. Volume for carbonated soft drinks, by contrast, fell in the “mid-single digits” despite stepped-up marketing. Noncarbonated drinks, which include Gatorade and Aquafina, increased in the “low-single digits.”

Still, CEO Indra Nooyi stressed that PepsiCo’s drinks and snacks are complementary to each other. She also downplayed the company’s exposure to colas, noting that they make up less than 25 percent of North American beverages.

PepsiCo also announced another cost-cutting program that will save $5 billion over the next five years from actions including factory closures and investments in automated manufacturing. The company says about 40 percent of the savings will come from workforce cuts, although it did not specify how many jobs would be affected. PepsiCo has about 278,000 employees, according to FactSet.

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