The company took too much ad money and shelf space away from its sodas.
The food and beverage giant said its North American beverage business lost market share in its most recent quarter as the company shifted too much of its marketing firepower and shelf space away from marquee carbonated drink brands Pepsi and Mountain Dew and toward newer, more health-focused beverages such as its LIFEWTR bottled water brand.
PepsiCo CEO Indra Nooyi told Wall Street analysts on a conference call that she views the setback as “temporary” and expects that part of the company’s sprawling businesses to get back to growth.
“We have a good handle on what happened and we’re making immediate adjustments,” Nooyi said. “We are stepping up marketing spending on Pepsi and Mountain Dew, including zero- and low-calorie products under these trademarks.” Nooyi was recently ranked the No. 2 most powerful woman in business by Fortune.
U.S. soda consumption has been in decline industrywide for 12 years as more consumers gravitate to healthier options, a trend PepsiCo under Nooyi has sought to capitalize on. On the call, Nooyi said that non-carbonated drinks’ share of PepsiCo’s total beverage sales has risen seven points since 2010 as she reasserted the soundness of that strategy.
The company’s Gatorade sports drink business was also sluggish, hurt by what the company said were weak convenience store sales and cooler weather. All in all, PepsiCo’s North American beverage unit saw sales fall 3% to $5.33 billion in the quarter ended Sept. 9.
Still, the company’s snacks division thrived: revenue from its Frito-Lay business, which includes Cheetos and Doritos, rose 3.2% in the third quarter.
For the company as a whole, net income rose to $2.14 billion, or $1.49 per share, in the quarter, from $1.99 billion, or $1.37 per share, a year earlier. Excluding certain items, the company earned a profit of $1.48 per share, beating the average analyst estimate of $1.43, according to Thomson Reuters I/B/E/S. Companywide net revenue rose 1.3% to $16.24 billion, a hair below the average analyst estimate of $16.31 billion.
PepsiCo has 22 billion-dollar brands, and three non-soda products look poised to join that club: Naked Juice ($923.9 million), Pure Leaf ($873.3 million), Sabra ($618.4 million). Last year, the company said that—by 2025—it wants two-thirds of its global beverage business by volume to be products with fewer than 100 calories from added sugar per 12-ounce serving, up from 40% at the time.
As Nooyi put it to Fortune’s Beth Kowitt last month, “The industry is seeing a pace of change and disruption that we’ve never seen.”