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PepsiCo Launches New Flavor of Chips

Zacks Equity Research

The Frito-Lay division of PepsiCo, Inc. (PEP) recently introduced a new flavor of potato chips; under its popular brand Ruffles. The new product brings the flavor of the popular snack beer-battered onion rings to Ruffles MAX beer-battered onion rings flavored potato chips.

With changing consumer preferences, there is a huge demand for new snacking products that tickle the taste buds. The introduction of beer-battered onion rings flavored potato chips comes at a crucial time, with spring events such as St. Patty’s Day just around the corner and sporting events and spring break trips in full swing.

Product innovation plays a huge role in the company’s success. PepsiCo regularly creates new flavors of existing products as well as maintains a robust pipeline of new products.  The company had recently introduced a new flavor of tortilla chips, under its popular brand Tostitos Artisan Recipes. The Grilled Red Pepper and Tomato Salsa flavored tortilla chips are inspired by the rich Mexican mole sauce.

Overall, we are encouraged by the company’s strong brand portfolio, its product and geographic diversity and solid cash flow generation. Moreover, PepsiCo reported impressive fourth-quarter results beating the Zacks Consensus Estimate for both revenue and earnings. In addition, the company provided an impressive outlook for 2013, which was in line with long-term targets, and also increased its dividend rate. On the other hand, PepsiCo’s rival, The Coca-Cola Company (KO), reported mixed fourth quarter results, beating the earnings estimate but missing out on sales.

However, we prefer to remain on the sidelines as a challenging consumer spending environment and continued sluggishness in the North American beverage business concerns us.

PepsiCo carries a Zacks Rank #3 (Hold).

Other companies in the sector, which are better positioned at current levels include Coca-Cola Hellenic Bottling Company S.A. (CCH) carrying a Zacks Rank #1 (Strong Buy) and Coca-Cola Enterprises Inc. (CCE) carrying a Zacks Rank #2 (Buy).

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