PepsiCo Inc. announced plans to increase advertising and marketing support behind its global brands by $500 million to $600 million in 2012, with particular focus on North America; going forward, it expects to maintain or increase that rate of support as a percentage of revenues.
The multi-year productivity program is expected to generate $1.5 billion of incremental cost savings by 2014 through optimization of operating practices and organization structure, including a reduction in force of about 8,700 employees, about 3 percent of global workforce
PepsiCo announced a series of strategic investment and productivity initiatives to deliver top-tier, sustainable long-term growth for its shareholders. These decisions are based on a comprehensive review by the company's management of its portfolio, brands, costs, organization and capital structure. As a result of its review, the company reaffirmed its commitment to an integrated food and beverage portfolio through a one-company platform.
"In a volatile global environment over the past five years, PepsiCo has delivered double-digit compound annual growth in core net revenue, 8 percent compound annual growth in core EPS (earnings per share), and returned about $30 billion to shareholders in the form of dividends and share repurchases," said PepsiCo Chairman and CEO Indra Nooyi in a prepared statement. "Our goal is to continue on that earnings trajectory over the next five to 10 years, fully recognizing that we need to make changes in how we operate to address the challenges we identified in the review process. 2012 will be a transition year, in which we will be taking the appropriate steps to build a stronger, more successful company going forward."
James Schiro, PepsiCo's presiding director, said: "The board of directors has been engaged throughout the review process. We are fully aligned with and supportive of management with respect to both the strategic direction of the company and also the initiatives being announced today."
The company reaffirmed the underlying strength of its integrated food and beverage portfolio – and concluded that PepsiCo offers the most compelling value to shareholders as one company.
Beginning in 2012, PepsiCo is undertaking a number of key actions to further strengthen the company and enhance shareholder value. The company said it plans to:
- Significantly increase investments in its iconic brands and in bringing innovation to market. Advertising and marketing spending will increase by $500 million to $600 million in 2012, the majority in North America. Going forward, it expects to maintain or increase that rate of support as a percentage of revenues. To drive efficiencies, it will reduce the number of agency partners and also take steps to leverage the global scale of its top brand platforms. The brand investments are expected to drive topline growth and enable greater price realization;
- Implement a 3-year productivity program that is expected to generate over $500 million in incremental cost savings in 2012, further incremental reductions in the cost base of about $500 million in 2013, and an additional $500 million in 2014. The productivity savings will span every aspect of the business: leveraging new technologies and processes across operations, go-to-market and information systems; heightened focus on best practice sharing across the globe; consolidating manufacturing, warehouse and sales facilities; and implementing simplified organization structures, with wider spans of control and fewer layers of management. This effort includes headcount reductions of about 8,700 employees across 30 countries, about 3 percent of the company's global workforce. The productivity programs will enhance the company's cost-competitiveness as well as provide a source of funding for future brand-building and innovation initiatives.
- Improve its net return on invested capital by at least 50 basis points annually beginning in 2013 through increased focus on capital spending and working capital management. As an example, in 2012 it will be reducing capital expenditures by 10 percent versus 2011. The emphasis is on systematically improving the efficiency of the existing asset base; and
- Enhance returns to shareholders in 2012 through both a 4 percent increase in its annual dividend beginning with the June 2012 dividend payment, and also the execution of a share repurchase program this year of at least $3 billion.