Frito-Lay, the convenient foods business unit of PepsiCo Inc. (PEP: 61.64 0.00 0.00%), has received a $1.125 million grant from the Texas Enterprise Fund for the company-wide implementation of SAP business management software and other IT system upgrades. This investment will create 125 jobs in North Texas and generate more than $50 million in business infrastructure.The Texas Enterprise Fund is controlled by the governor and used to recruit companies that want to relocate or expand to Texas. The fund’s interest in Frito-Lay’s IT transformation centers on the project’s ability to create more than a hundred jobs.
Frito-Lay’s project grant is in conformity with its parent company PepsiCo.’s multi-year plan to convert and upgrade the company’s business management software throughout product lines and divisions. The state’s investment will support the team responsible for the software conversion.
PepsiCo reported strong first-quarter fiscal 2010 results with earnings of 89 cents per share, well above the Zacks Consensus Estimate of 75 cents and up 23% year over year. Profits were driven by the acquisition of its two anchor bottlers, volume gains in its worldwide snacks and international beverage businesses, balanced investments and lower costs across its operations.
PepsiCo’s net sales for the quarter increased by 13.4% year over year to $9.4 billion. Volume in the Frito-Lay North America division grew 1% year over year with a 2% increase in revenue. Volume growth reflected strong performance in trademark Lay’s and variety packs.
Management expects an 11% to 13% EPS growth rate in constant currency for fiscal 2010. The Zacks Consensus Estimate for PepsiCo currently stands at $4.16 and $4.14 for fiscal 2010 and 2011, respectively.
International growth, productivity improvements, ongoing productivity enhancement initiatives and a strong new product pipeline are the major positives for PepsiCo. Furthermore, efficient cost control mechanisms have helped PepsiCo to put a check on rising commodity costs. The company has also implemented several initiatives to enhance sales growth, improve merchandising effectiveness and increase snack-making capacity.
However, intense competition from other established players and higher raw material prices undermine the company’s future growth prospects and profitability. This leaves limited space for above-market performance of the company. Our long-term recommendation on PepsiCo is Neutral as we anticipate it to perform in-line with the broader market.
New York-based PepsiCo Inc. is the leading global snack food company and the second largest soft drink company, providing food and beverage products in more than 200 countries. The company is organized in six business segments: Frito-Lay North America, Quaker Foods PepsiCo Americas Beverages, Latin America Foods, U.K./Europe, Middle East/Africa/Asia, and North America. Frito-Lay North America produces snack foods in the U.S., including Lay’s, Doritos, Tostitos, Cheetos, Ruffles, and Fritos, among others.
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