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PepsiCo announces job cuts as net income rises

Despite high profits PepsiCo has announced that it plans to layoff of its workforce, as it tries to offset higher costs for ingredients and increased spending on advertising in North America.
by Archana Chaudhary

PepsiCo announces job cuts as net income rises

What is more important? Providing jobs or putting more money into advertisements? PepsiCo certainly thinks that the latter is more crucial than its employees. The food and drinks maker announced a restructuring on February 9, which includes cutting 8,700 jobs globally and plowing money into advertising drinks such as Pepsi and Mountain Dew in North America.

The announcement of Pepsi's cost-cutting plan came just as the company reported better-than-expected fourth-quarter profits, but also forecast a decline in adjusted 2012 earnings. On the mixed news, the company's shares fell nearly four percent.

CEO Indra Nooyi said that 2012 will be a transitional year for the company 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 most snack and soda makers, Pepsi is also facing higher costs for materials it uses to make, package and transport its products, including aluminum. Many companies 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. Wonder if it also has anything to do with more consumer awareness regarding the ill-effects of certain types of snacks and sodas.

Meanwhile Pepsi's arch rival Coca-Cola also announced its own cost-cutting program recently, however, 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.

Nooyi revealed that the company would be cutting about three percent of its 300,000 worldwide work force and the reduction would be spread over 30 countries. The company typically adds 10,000 to 15,000 jobs in any one year.

While Pepsi is making the cuts it is also planning to invest in its business. It plans to increase advertising and marketing behind its brands by $500 million 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.

"Running a large company is like doing a car race," Nooyi, 56, said 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," Nooyi continued. Try telling that to the 8,700 jobs that you cut in North America, this is a very expensive pit stop for them.

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