Pepsi’s earnings show the thirst for sparkling water is real

Bubbling up.
Bubbling up.
Image: AP
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PepsiCo, one of the world’s largest food and beverage companies, posted second quarter earnings today of $2.04 billion, once again beating analyst expectations. Revenue growth wasn’t as strong as the blowout first quarter results released in April, but snacks and fizzy water helped buoy the brand.

Pepsi’s Frito-Lay unit, which covers a range of chip brands like Doritos and Tostitos, continues to perform well, with revenue growth outpacing the beverage category by more than double. In recent years, sales of traditional soft drinks have sagged as consumers flock to healthier, less sugary beverage substitutes. Carbonated water sales grossed more than $2.3 billion in the US in 2018, while flavored water was up 72% to more than $3 billion.

Pepsi is doubling down on this shift. In December last year it completed its acquisition of Israel-based SodaStream for $3.2 billion. The company’s namesake product allows consumers to create beverages at home with different temperatures, flavors, and levels of carbonation.

“We’re starting to put more of the PepsiCo capabilities against the SodaStream business, especially around flavors and around some of the consumer experience with flavor which I think were under-optimized,” Ramon Laguarta, Pepsi’s chairman and CEO, said in the post-earnings call.

Pepsi has also invested in other sparkling water products, including the sugar-free Bubly, which Laguarta said the company sees as its brand of the future. “We’re going to be innovating in this brand and not only flavors but other occasions. I think we can attack. You’re going to see mini-cans. You’re going to see larger cans. There’s going to be a no-plastic brand we think that is very good positioning … This could be one of our next $1 billion brands,” he added.

Plastic-free business lines and the fact that SodaStream avoids single-use bottles could also offset certain regulatory risks for the company. Its quarterly report (pdf) noted the prospect of new, green-friendly taxes and regulations in certain jurisdictions.