Pepsi’s stock jumps as higher advertising spending fuels sales growth and earnings beat

PepsiCo on Thursday announced quarterly earnings and revenue that topped expectations, as its increased spending on advertising and marketing paid off for brands like Gatorade.

Shares of the food and beverage giant gained 2.6% in premarket trading.

“Given our performance year-to-date, we now expect to meet or exceed our full-year organic revenue growth target of 4%,” CEO Ramon Laguarta said in a statement.

The company reaffirmed its earnings outlook for fiscal 2019. It expects adjusted earnings per share, assuming constant foreign currency exchange rates, to decline by 1%.

Here’s what the company reported compared with what Wall Street was expecting, based on a survey of analysts by Refinitiv:

• Earnings per share: $1.56, adjusted, vs. $1.50 expected
• Revenue: $17.19 billion vs. $16.93 billion expected

Pepsi reported fiscal third-quarter net income of $2.1 billion, or $1.49 per share, down from $2.5 billion, or $1.75 per share, a year earlier. The company’s strategy for sales growth includes investing more on marketing and advertising its products.

Excluding the impact of foreign exchange, restructuring charges and other items, Pepsi earned $1.56 per share, topping the $1.50 per share expected by analysts surveyed by Refinitiv.

Net sales rose 4.3% to $17.19 billion, beating expectations of $16.93 billion.

Frito Lay North America, which includes brands like Cheetos and Doritos, saw revenue growth of 5.5%. Pepsi has been expanding its snack lineup with healthier options, through brands like Bare and Off the Eaten Path. Revenue growth from those healthier snacks and well-known chip brands helped offset the double-digit sales declines of Sabra hummus and guacamole dips. Pepsi owns a 50% stake of the hummus maker through a joint venture with Strauss Group.

Its North American beverage business also performed well, with 3.5% revenue growth. Gatorade improved its market share and saw positive net revenue growth during the quarter. The brand’s no-sugar line, Gatorade Zero, which launched in May 2018, surpassed $500 million in retail sales.

Bubly, which the company expects will be one of its next billion-dollar brands, is continuing to gain market share in the flavored sparkling-water category against competitors like La Croix.

Pepsi’s organic revenue also grew by 4.3% during the quarter.