PepsiCo Inc. is cutting jobs and closing factories to give it some “breathing room” to navigate the volatility that has permeated all corners of the global economy.
The maker of Pepsi-Cola, Doritos and Sun Chips said Tuesday it plans to eliminate 3,300 jobs and shutter six plants in an effort to save $1.2 billion over three years. It plans to use the savings primarily to revive lagging U.S. soft drink sales.
“This will enable our competitiveness and give us breathing room to respond,” CEO Indra Nooyi said on a conference call. “It is no news to you the economy is turbulent and there are uncertainties and volatility in every part of the environment.”
The announcement came as the global snacks and drinks company reported a 9.5 percent drop in third-quarter profit, missing Wall Street expectations. PepsiCo also issued a downbeat profit outlook for the fourth quarter and full year, saying that the dollar's recent surge against other major currencies will hurt profits from its rapidly growing international business, which posted a 20 percent increase in quarterly sales.
The job cuts amount to roughly 1.8 percent of PepsiCo's global work force of about 185,000 employees, and will affect managerial and factory jobs both in and outside the U.S. Most will be eliminated in the coming months, Chief Financial Officer Richard Goodman said.
The nation's second-largest drink maker – which also owns the Frito-Lay, Tropicana and Quaker brands – said the cuts will generate savings of $350 million to $400 million in 2009.
“While we can't control the macroeconomic situation, we can enhance PepsiCo's operating agility to respond to the changing environment,” Nooyi said in a statement.
In the third quarter, the company reported net income of $1.58 billion, or 99 cents a share, down from $1.74 billion, or $1.06 per share, a year ago. Revenue grew to $11.2 billion in the most recent period from $10.17 billion in the year-ago period.
Health care giant Johnson & Johnson on Tuesday posted a 30 percent jump in third-quarter profit and beat Wall Street expectations, mainly because the year-ago results were weighed down by a $745 million restructuring charge.
Higher sales of consumer products and medical devices, boosted overseas by the weak dollar, also helped the New Brunswick, N.J.-based maker of contraceptives, baby care items, medical devices and prescription drugs. It reported net income of $3.31 billion, or $1.17 per share, up from $2.55 billion, or 88 cents per share, in the year-ago period.
Revenue climbed 6.3 percent, to $15.9 billion from $14.97 billion, but was boosted 3.1 percent by favorable currency exchange rates.
Analysts surveyed by Thomson Reuters expected earnings per share of $1.11 and revenue of $15.69 billion.
Boeing Co. factories will remain idle into a sixth week after the aircraft maker and its machinists union failed to settle a strike over job security and ended a new round of talks that began over the weekend.
“We worked very hard to find solutions, and we are extremely disappointed that the talks broke off,” lead Boeing negotiator Doug Kight said in a statement Monday night. “We cannot sacrifice our ability to continuously improve productivity and our long-term competitiveness for an agreement.”
The work stoppage is costing Chicago-based Boeing, which trails only Airbus SAS in commercial plane making, more than $100 million in lost revenue a day, since the company usually gets paid upon delivery, analysts estimate. The walkout is also further delaying the 787 Dreamliner, which is at least 15 months behind schedule and was supposed to fly for the first time next month.
Job security is the main conflict between Boeing and the International Association of Machinists and Aerospace Workers. Along with a higher compensation package than Boeing had offered, the union wants to take back some work being done by outside vendors and have a chance to bid for more projects in the future.