PepsiCo said it plans to cut 8,700 jobs, or about 3 per cent of its workforce, as it tries to offset higher costs for ingredients and increased spending on advertising and marketing in North America.
The maker of everything from Pepsi soda to Doritos chips said it expects the restructuring will save the company $1.5 billion US by 2014 -- on top of $1.5 billion in cost cutting it previously announced.
Pepsi announced the layoffs on Thursday as it reported better-than-expected fourth-quarter profit, but forecast a decline in adjusted 2012 earnings. On the mixed news, the company's shares fell 2.7 per cent.
Like most snack and soda makers, Pepsi is facing higher costs for materials it uses to make, package and transport its products, including aluminum. Many companies 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's restructuring follows rival Coca-Cola Co., which announced its own cost-cutting program on Tuesday, although Coke did not say it was cutting any jobs. 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.
CEO Indra Nooyi said although it's cutting 3 per cent of its worldwide work force, the reduction is spread out over 30 countries. The company typically adds about 10,000 to 15,000 jobs in any one year.
Pepsi employs nearly ten thousand employees in Canada at two business divisions: PepsiCo Foods Canada and PepsiCo Beverages Canada. It's not clear if either division will be forced to lay off employees. Calls to both divisions for comment were not immediately returned.
At the same time its 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.
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 its ramped up its overseas business.
"Given how much more long term growth potential we think emerging markets offer, and given how under-scaled Pepsi's business is in many emerging markets relative to Coca-Cola, 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.
Pepsi's profit rises
For the fourth quarter ended Dec. 31, the Purchase, N.Y.-based company said Thursday that its net income rose 4 per cent 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 per cent to $20.16 billion. Analysts expected $19.89 billion. Higher prices and cost cutting helped offset higher commodity costs. Volume rose 7 per cent.
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.
PepsiCo says it expects adjusted 2012 earnings to fall 5 per cent in 2012 during a transition and then rise in the high single digits after that.