Increased Ad Dollars, Layoffs Part of PepsiCo's New Growth Strategy

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Increased Ad Dollars, Layoffs Part of PepsiCo's New Growth Strategy


NEW YORK -- PepsiCo is set to launch several key initiatives as part of a new strategy to drive growth, including laying off about 3 percent of its global workforce as part of a three-year productivity program.

The decisions, according to a company release, are based on a comprehensive review by management of its portfolio, brands, costs, organization and capital structure. As a result of the review, PepsiCo 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, and returned about $30 billion to shareholders in the form of dividends and share repurchases," said PepsiCo Chairman and CEO Indra Nooyi. "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."

Beginning this year, the company plans to significantly increase investments in its iconic brands and in bringing innovation to the market with a $500-million to $600-million increase in advertising and marketing spending this year alone, the majority focused on North America. Going forward, it expects to maintain or increase that rate of support as a percentage of revenues.

PepsiCo will also implement a three-year productivity program that is expected to generate more than $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, roughly 3 percent of the company's global workforce.

The company also said it will 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. In addition, it will 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.

"As we implement our strategic priorities in 2012, we've had to make some tough decisions," said CFO Hugh Johnston. "As a result, 2012 will be a year of transition, one in which we will make the right investments to position PepsiCo properly to achieve long-term, high-single-digit core constant currency EPS growth."