By Sruthi Ramakrishnan
REUTERS - PepsiCo Inc's shares fell on Wednesday after weak demand for Gatorade and some marketing missteps led to a drop in beverage sales in North America for the first time in two years, and the company lowered its full-year organic revenue growth forecast.
The weak demand for Gatorade, which accounted for a fifth of total sales volume in the region, was due to relatively mild summer, while sales of other beverages were hit by a slowdown in traffic at convenience stores, Chief Executive Indra Nooyi said on a conference call.
"This summer, we directed too much of our media spending and shelf space to low-calorie, much smaller brands at the expense of our Pepsi and Mountain Dew trademarks," Nooyi said.
Revenue from PepsiCo's North America beverage unit, the company's largest, fell 3.4 percent to $5.33 billion in the third quarter ended Sept. 9 due to a 6 percent drop in volume sales.
The drop was the first since PepsiCo started breaking out beverage sales in North America in the third quarter of 2015.
The company's shares were down 2 percent at $106.95 in trading before the bell.
Soda consumption has been falling for the last 12 years as more consumers choose healthier options, forcing soda makers such as PepsiCo and Coca-Cola Co to bulk up their portfolio of non-carbonated drinks and launch low and/or no-calorie versions of their marquee soda brands.
However, PepsiCo reported a better-than-expected third-quarter profit, helped by lower costs and a 3.2 percent rise in revenue from its Frito-Lay business, which sells snacks such as Cheetos and Doritos.
The company's total selling and general costs dipped 0.7 percent in the quarter and Nooyi indicated costs would be cut further over the next few quarters.
Net income attributable to PepsiCo rose 7.6 percent to $2.14 billion, or $1.49 per share.
Excluding items, it earned $1.48 per share, beating the average analyst estimate of $1.43, according to Thomson Reuters I/B/E/S.
Net revenue rose 1.3 percent to $16.24 billion, coming in below the average analyst estimate of $16.31 billion.
The company cut its full-year organic revenue growth forecast to 2.3 percent, from at least 3 percent.
"We believe the market had expected a revision, but the magnitude was larger than expected," Morgan Stanley analysts wrote in a note.
PepsiCo raised its profit forecast by 10 cents to $5.23 per share, due to a smaller impact from the dollar.
(Reporting by Sruthi Ramakrishnan in Bengaluru; Editing by Arun Koyyur)
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