PepsiCo Layoffs: World's 2nd-Largest Food Company Cutting 8700 Jobs Despite Higher Revenue
NEW YORK — PepsiCo is trying to put some fizz back into its business. The food and drinks maker announced a restructuring on Thursday that includes cutting 8,700 jobs globally and plowing money into advertising drinks like Pepsi and Mountain Dew in North America.
Pepsi announced its cost-cutting plan Thursday as it reported better-than-expected fourth-quarter profit, but also forecast a decline in adjusted 2012 earnings. On the mixed news, the company's shares fell nearly 4 percent.
In a media briefing, CEO Indra Nooyi said 2012 will be a "transitional year" as economic uncertainty persists.
"When the only certainty is uncertainty the whole guidance thing becomes a challenge," she said. "Anything you do in short term just to meet short term guidance would be detrimental to the company in the long term."
Like many companies of all stripes, Pepsi is facing higher costs for materials it uses to make, package and transport its products, including sugar, corn and aluminum. Pepsi and many other food and beverage makers raised prices last year to offset the higher costs. But consumers are still cautious about spending in the uncertain economy, so some companies are moving on to Plan B: cost cutting.
Pepsi rival Coca-Cola Co. announced its own cost-cutting program on Tuesday, although Coke did not say it was reducing its workforce. For its part, Pepsi said "tough decisions" needed to be made because it expects 2012 will be the second year in a row that it will encounter higher-than-average costs for commodities.
Pepsi was expected to take some cost-cutting measures, but analysts also had speculated that the company might split up its snack and food business. Pepsi said Thursday that it has no plans to do that.
Nooyi said although the company is cutting about 3 percent of its 300,000 worldwide work force, the reduction is spread out over 30 countries. She declined to say how many job cuts would be made in the U.S., but said it was less than 3 percent of the total U.S. work force.
At the same time it's making cuts, PepsiCo also is planning to invest in its business.
PepsiCo plans to increase advertising and marketing behind its brands by $500 million to $600 million in 2012, with a particular focus on North America. It also plans to invest $100 million on in store racks, displays and coolers. Additionally, it plans to increase dividends and share buybacks in 2012 to return cash to shareholders.
PepsiCo, which also makes Quaker Oats and Tropicana juice, said it expects the restructuring will save the company $1.5 billion by 2014. That's on top of $1.5 billion in cost cutting it previously announced.
One analyst questioned whether Pepsi should spend more of its advertising dollars in other countries, including emerging markets like India. While Pepsi's snack business is stronger than Coke's, he reasons, PepsiCo has been losing ground to Coke on the soda side as Cokes has ramped up its overseas business.
"We are curious as to why Pepsi has not made the choice to balance its investment spending more evenly around the world," wrote Citi Investment Research analyst Wendy Nicholson in a note to investors. She kept her "Neutral" rating on the stock.
For the fourth quarter ended Dec. 31, the Purchase, N.Y.-based company said Thursday that its net income rose 4 percent to $1.42 billion, or 89 cents per share. That's up from $1.37 billion, or 85 cents per share, last year.
Excluding restructuring and other costs, net income was $1.15 per share. Analysts expected $1.13 per share, according to FactSet.
Revenue rose 11 percent to $20.16 billion. Analysts expected $19.89 billion. Higher prices and cost cutting helped offset higher commodity costs. Volume rose 7 percent.
The company took a $383 million charge in the fourth quarter related to the restructuring plan and said it will take $425 million in charges in 2012. It will take $100 million in charges between 2013 and 2015.
For the year, net income rose 2 percent to $6.46 billion, or $4.03 per share. That compares with $6.33 billion, or $3.91 per share. Revenue for the year rose 15 percent to $66.5 billion from $57.84 billion.
PepsiCo says it expects adjusted 2012 earnings to fall 5 percent in 2012 during a transition and then rise in the high single digits after that.
Its shares fell $2.47, or 3.7 percent, to close at $64.27 Thursday.
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MAE ANDERSON 02/ 9/12 04:41 PM ET