PepsiCo Inc. (NYSE:PEP), the world's largest snack-food maker, plans to cut 8,700 jobs to offset high commodity costs and boost investment in advertising and marketing in North America.
PepsiCo's shares closed down 3.70 percent or $2.47 to $64.27 in Thursday's trading, while Coca-Cola fell 0.53 percent.
The maker of Pepsi soda, Doritos chips and Tropicana juice said Thursday the job cuts represents about three percent of PepsiCo's global workforce. The turnaround plan is expected to save PepsiCo $1.5 billion by 2014.
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 earnings per share growth, CFO Hugh Johnston said in a statement.
The Purchase, N.Y.-based company said tough decisions were needed because it expects 2012 will be a second consecutive year of global commodity cost inflation that is going to be well above historic levels. And in the current economic climate, PepsiCo does not think it will be able to offset these additional costs through increased pricing given the continuing challenges that consumers are facing, particularly in the developed economies.
PepsiCo 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, with a focus in North America beverages and food. And the benefits will be increasingly seen in the second half of 2012 and into 2013.
PepsiCo's rival Coca-Cola Co. (NYSE:KO), which is also facing higher costs for commodities such as corn-based sweeteners and plastic, announced its own cost-cutting program Tuesday, although Coke said it would ultimately add jobs in its program. The company also said it plans to reduce costs by $550 million to $650 million by 2015.
Meanwhile, PepsiCo reported a fourth-quarter profit of $1.42 billion, or 89 cents per share, up from $1.37 billion, or 85 cents per share, a year earlier. Excluding one-time items, PepsiCo earned $1.15 per share, beating analysts' consensus estimate of $1.13 per share, according to Thomson Reuters.
Sales climbed 11 percent to $20.2 billion.
Running a large company is like doing a car race, PepsiCo's CEO Indra Nooyi said Thursday in an interview on Bloomberg Television. Occasionally, you have to stop and refuel yourself in the pit stop, and that is what we're doing in 2012.