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PepsiCo's (PEP) Frito-Lay to Expand Plant Capacity in Rosenburg

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PepsiCo, Inc.’s PEP leading snack division, Frito-Lay, joined hands with Fort Bend County to invest in the former’s Rosenberg, TX facility. The investment worth $200 million is likely to expand capacity at its warehouse and also add manufacturing lines for Funyuns and tortilla chips. This new development, expected to be completed by 2023, will create 160 full-time jobs.

Notably, the facility currently has more than 750 full-time plant and fleet associates. Being the unit’s largest facility in Texas, it produces more than 117 million pounds of snacks for Texas, Louisiana, Oklahoma, Kansas and Georgia and other areas across the United States, on an annual basis. Prior to this, Frito-Lay invested $138 million in the Rosenburg facility, wherein a new Cheetos line was added along with new seasoning, packaging equipment and the expansion of a warehouse. This project is due for completion in late 2021.

The latest move can be attributable to persistent demand for at-home breakfast and lite snacking trends, which have been aiding the Frito-Lay business. Notably, Frito-Lay has gained market share in both macro-snack and salty snack categories. Its revenues reflect gains from continuous efforts to refresh the flavors and introduce consumer-centric innovation like Doritos 3D Crunch and Cheetos Crunch Pop Mix. Revenue growth across all major brands, including Ruffles, Tostitos, Doritos, and Lay’s, have been key drivers.

What Else Should You Know?

PepsiCo has been gaining from resilience and strength in its global snacks and foods business as well as growth in the beverage category. It also gained from its strong portfolio of brands, a responsive supply chain and flexible go-to-market systems. On an organic basis, first-quarter 2021 revenues grew 2.4% year over year, with unit volumes up 1% and 2% for the snacks/food business and the beverage business, respectively. Going ahead, management expects organic revenue growth in mid-single digits, with core constant-currency EPS growth in high-single digits.

Elevated at-home consumption trends in North America contributed to growth in the beverage segment. Notably, it delivered strong double-digit revenue growth for the energy portfolio, including acquisitions, and low-single-digit growth for the Gatorade sports drink. Additionally, brands like bubbly, Starbucks, Mountain Dew, Gatorade and Pepsi reported strong growth in first-quarter 2021. Moreover, market share trends for the liquid refreshment beverage category improved, with share gains in the carbonated soft drinks, teas, juices and sparkling water categories. Further, the company is witnessing robust trends in the energy drinks category, with the launch of Mountain Dew Rise Energy and efforts to revitalize the Rockstar products.

Moreover, the company remains on track with cost-containment efforts to streamline the organization and optimize its manufacturing and supply-chain footprint. In 2019, the company delivered in excess of $1 billion in productivity savings, keeping it on track with its goal of generating productivity savings of at least $1 billion annually through 2023. The company expects to achieve this productivity goal through savings generated from restructuring actions. Savings from the productivity and restructuring plans are likely to boost top-line and margins in the near term.

In the past three months, shares of this Zacks Rank #3 (Hold) company have gained 10.4%, outperforming the industry’s growth of 7.4%.

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Compania Cervecerias Unidas, S.A. CCU has an expected long-term earnings growth rate of 11% and currently, a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Fomento Economico Mexicano FMX, also a Zacks Rank #2 stock, has a long-term earnings growth rate of 9.3%.

Nomad Foods NOMD, currently carrying a Zacks Rank #2, has a trailing four-quarter earnings surprise of 10.3%, on average.

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