Hugh Johnston, Chief Financial Officer of PepsiCo, Inc. (NYSE:PEP), feels good about Russia and believes the consumers are very cautious at the moment. Johnston also believes that innovation has played a key role in the company’s good performance and steady growth. During a recent intervention with Maria Bartiromo on FOX Business Network, Hugh Johnston has discussed Nelson Peltz’s suggestion to break up the company, how the recent events in Eastern Europe have affected their business in Russia and how the company managed to surpass market expectations for the 2014 second quarter.
“… one of the things we have done is we’ve driven productivity and invested that productivity back in our brands and we’ve invested it in innovation and that’s what’s enabled us to perform as well as we have,” said Johnston.
The company has registered a 3.6% revenue growth during the 2014 second quarter, beating analyst expectations. PepsiCo, Inc. (NYSE:PEP)’s revenue in the emerging markets has grown 8%, signaling a strong position of the company in those countries. Business in Europe grew 5%, while Asia, Middle East and Africa business increased by 7%. The company has also been successfully improving productivity, which allowed it “to drive 65 basis points of operating margin improvement.” Johnston also states that PepsiCo is satisfied with the strengthening of all its brands across the globe, which he also attributes to the company’s innovation efforts.
When asked to comment on the Nelson Peltz’s proposal to break up the company, Hugh Johnston insisted everybody would be better off if the portfolio stayed intact. He cites the company’s 9% Earnings Per Share (EPS) growth in 2013 and more than 9% EPS growth in the first 6 months of 2014. He thus claims PepsiCo, Inc. (NYSE:PEP) is performing “awfully well” and that “this portfolio truly is better together.” Johnston also argues that, should the company be taken apart, the business would register an increase in costs, which would hinder revenue growth.
“… you’d add a lot of costs back into the business where we should be looking to take costs out of the business”, commented Johnston.
Hugh Johnston uses their business strategy in the emerging markets to back up his claim. He argues that international expansion is firstly driven by the company’s beverage branch, which paves the way for the snack business to be built later on.
Johnston plays down the impact of the current crisis in Ukraine on PepsiCo, Inc. (NYSE:PEP)’s business in Russia, stating that the company is present in more than 200 countries and that they often have to deal with tense geopolitical situations. During the previous quarter, the company has registered mid-single digit revenue growth in Russia and does not expect the situation to change dramatically.
“consumers still need to eat and still need to drink even in the midst of challenging geopolitical times. We do see the business continue to perform well”, added Johnston.
He admits that the recent currency fluctuations have become an issue for the company, but is confident they can price their way through that.
You can watch the full interview below: