PepsiCo has always been in direct competition with Coca-Cola Co., but now it seems that the company's main problem is higher costs for materials. A restructuring plan was announced Thursday that includes cutting 8,700 jobs internationally.
Like many other food and beverage producers, Pepsi is facing increased costs for numerous products, including sugar and corn. The first attempt to remedy the situation for many companies was to raise prices last year, but because consumers didn't respond as expected, companies are being forced to cut costs.
According to The Wall Street Journal, 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 the company is cutting about three percent of its 300,000 worldwide employees, the reduction is spread out over 30 countries. She declined to say how many jobs would be cut in the U.S., but said it was less than three percent of the total U.S. work force.
While making cuts, PepsiCo, which makes Quaker Oats and Tropicana juice, also plans to increase advertising and marketing for its brands by $500 million to $600 million in 2012, with a focus on North America, while investing $100 million on in store racks, displays and coolers.
PepsiCo expects the restructuring to save the company $1.5 billion by 2014 on top of $1.5 billion in cost cutting.
In a media briefing, CEO Indra Nooyi said 2012 will be a transitional year as economic uncertainty persists.
When the only certainty is uncertainty, the whole guidance thing becomes a challenge, she said. Anything you do in short term just to meet short term guidance would be detrimental to the company in the long term.
According to The Wall Street Journal, for the fourth quarter ended Dec. 31, the company said that its net income rose four percent to $1.42 billion, or 89 cents per share. That's up from $1.37 billion, or 85 cents per share, last year.
Sales climbed 11 percent to $20.2 billion, according to Business Week.
PepsiCo said it expects adjusted 2012 earnings to fall five percent in 2012 during a transition and then rise in the high single digits after that.