Pepsico to cut 8,700 jobs as part of restructuring

New York: Pepsico is trying to put some fizz back into its business. The food and drinks maker announced a restructuring that includes cutting 8,700 jobs globally and ploughing money into advertising drinks like Pepsi and Mountain Dew in North America.

Pepsi announced its cost-cutting plan on Thursday as it reported better-than-expected fourth-quarter profit, but also forecast a decline in adjusted 2012 earnings. On the mixed news, the company's shares fell nearly 4 per cent.

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."

Like many companies of all stripes, Pepsi is facing higher costs for materials it uses to make, package and transport its products, including sugar, corn and aluminium. Pepsi and many other food and beverage makers raised prices last year to offset the higher costs.

But consumers are still cautious about spending in the uncertain economy, so some companies are moving on to Plan B: cost cutting.

Pepsi rival Coca-Cola announced its own cost-cutting programme on Tuesday, although Coke did not say it was reducing its workforce. For its part, 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.

Pepsi was expected to take some cost-cutting measures, but analysts also had speculated that the company might split up its snack and food business. Pepsi said on Thursday that it has no plans to do that.

Nooyi said although the company is cutting about 3 per cent of its 300,000 worldwide work force, the reduction is spread out over 30 countries. She declined to say how many job cuts would be made in the US, but said it was less than 3 per cent of the total US work force.

New investments

At the same time it's making cuts, Pepsico also is planning to invest in its business. It plans to increase advertising and marketing behind its brands by $500 million (Dh1.83 billion) to $600 million in 2012, with a particular focus on North America. It also plans to invest $100 million on in store racks, displays and coolers. Additionally, it plans to increase dividends and share buybacks in 2012 to return cash to shareholders.

Pepsico, which also makes Quaker Oats and Tropicana juice, said it expects the restructuring will save the company $1.5 billion by 2014. That's on top of $1.5 billion in cost cutting it previously announced.

Some questioned whether Pepsi should spend more of its advertising dollars in other countries, including emerging markets like India. While Pepsi's snack business is stronger than Coke's, Pepsico has been losing ground to Coke on the soda side as Cokes has ramped up its overseas business.

For the fourth quarter ended December 31, the Purchase, New York-based company said that its net income rose 4 per cent to $1.42 billion, or 89 cents per share. That's up from $1.37 billion, or 85 cents per share, last year.