PepsiCo matched its archrival Coca-Cola in reporting modestly improved first-qtr performance, and wasted no chance to say it vindicates strategy of maintaining diverse portfolio of food and bev brands, reinvesting in brands and maintaining pricing discipline. On strength of overseas biz, revenues came in flat at $12.6 bil, but were up 4% excluding impact of foreign exchange and structural changes. Operating profit rose healthy 9% to $1.81 bil. Among strongest overseas markets, Russia and Brazil scored double-digit sales gains and India rose in high single digits. But PepsiCo Americas Beverages was flat at $4.42 bil, and operating profit dropped 24% to $429 mil. In core North America market, noncarbs rose 2% but were offset by CSDs that slipped 1%. Latin America bev volume slipped 1% because of newly enacted sugar tax in Mexico, but PEP brass said impact so far is within what their models have anticipated.

Respectable Q1 performance showed that "heavy lifting" PEP has been doing to transform portfolio and executional abilities is "showing results," maintained chmn/ceo Indra Nooyi on investor call this morning. Co is "consistently meeting or exceeding our financial goals," thanks in part to "balance and diversity" of portfolio that allows it to manage ups and downs of individual businesses. Efforts at "consistent net price realization," which yielded 4% price increases for bevs and snacks last year, further brought 2% gain for bevs and 4% gain for snacks in Q1, she noted, and PEP plans to stay the course this year.

Tho analysts who've been skeptical of PEP's strategy weren't ready to change their views on basis of OK performance in small quarter, general response was favorable. "Global volume performance was better than expected and Pepsi Americas Beverages flat versus consensus expectations of -2.7%," wrote Nik Modi at RBC Capital Markets. "Across most regions volumes were better than consensus estimates . . . With only Latin America below expectations (tho pricing was up 12%), this is a solid global performance for PepsiCo." Improved performance, noted Stifel Nicolaus' Mark Swartzberg, "aids management's defense of its one-co decision but (we) also think management remains in an active conflict with shareholders, not limited to Trian, favoring better margin discipline, two-co, and better TSR (total shareholder return) practices." Shares edged up in trading today as Coke's had after release of its earnings late last week. Over past year PEP shares are up 5% while KO's are down 5%.

As latest example of how "better together" strategy (once called Power of One) is benefiting co, Nooyi cited entry of special version of its deep-ridged chips to Buffalo Wild Wings chain on account of strong bev partnership already in place there. (Skeptics might argue BWW would have no reason to reject hot snack innovation whether or not it's PEP's bev partner.) And while Coca-Cola touts the many ways it's leveraging upcoming World Cup sponsorship - including via support of trophy tour around world - non-sponsor Pepsi seems pretty pleased about its own ambush efforts, hitting 100+ markets via vehicles like superstar football squad of 19 players including former world player of year Leo Messi.

Dew, Lipton, Starbucks, Naked among Top Bev Performers in N Amer No question results were better on food side, with Frito-Lay scoring excellent quarter and Quaker Oats claiming share gains in every core category. On bev side, if growth was flat overall, PEP took solace in attaining positive net pricing "ahead of the category and of our primary competitor" even while growing share of regular colas and Mountain Dew and, on noncarb side, of Gatorade isotonics, Lipton Iced Tea, Starbucks coffee and Naked Juice. Two packaging innovations - minicans and 12-oz glass bottles - both enjoyed double-digit growth.

Hot-Button Topics: Nothing on Sodastream Rumor; Indra Not Going Anywhere for Now Asked generally about ceo transition, Nooyi reminded listeners that PepsiCo is well known for deliberate, long-term process of developing future leaders, but noted pointedly, "Let me assure you, at this point, I'm still in the chair." No comments made, nor questions asked, about rumor this week that PEP may be ready to make move on Sodastream, tho similar rumors emanating from SODA's home market of Israel in past have proved unfounded. Recall also that PEP holds equity stake in at least one rival, Bevyz. Among bev segments that received no comments or questions from analysts was that of energy.  

No question FDA has bugaboo about melatonin: it's gone after another co for calling a melatonin-containing brand a beverage rather than a dietary supplement. Latest to draw agency's ire is Las Vegas-based Dewmar Int'l BMC for its Lean Slow Motion Potion bevs in Easta Pink, Purp and Yella versions, which agency says are improperly represented as bevs via on-pack use of nutritional rather than supplement label as well as ancillary marketing mechanisms such as comparisons of flavors to food or bev brands like Fanta, Sprite and Jolly Rancher - even message from co's prexy on Web site that refers to products as "relaxation beverages." Recall, FDA had sent similar warning letters in 2011 to Revolt Distribution for Slowtivate drink and to HBB Inc for Lazy Larry brownies, both of which contained melatonin, moves which are believed to have spooked Viva Beverages into dropping melatonin from its until-then briskly growing Marley's Mellow Mood relaxation bevs (BBI, Apr 17 2012). Letter to Dewmar holds particular relevance, regulatory expert Justin Prochnow of Greenberg Traurig pointed out, because it's first sent by agency since issuance in Jan of its long-awaited Guidance for Industry: Distinguishing Liquid Dietary Supplements from Beverages. The lesson? Latest letter "reinforces the notion that you must be consistent in your marketing and advertising of your products as supplements or beverages," Justin warns. "This will likely not be the last letter industry sees over this issue."
	<br><br><strong><em>Note: this story is reprinted from last Thursday's edition of BBI after being mangled in some email blasts.</em></strong>

Seminole Tribe of Florida Inc continues to build citrus holdings, now via acquisition of 60% stake in Blue Lake Citrus Products of Winter Haven, Fla. Deal builds on tribe's Apr 2013 acquisition from Noble Produce Holdings of majority interest in Noble Food Service, sales and marketing div of Blue Lake Citrus Products. Seminole Pride brand portfolio consists of Noble 100% pure juice, Noble organic juice, Healthy On-The-Go fruit snacks, OWV natural spring water and beef. Day-to-day operations of plant will continue to be managed by Blue Lake prexy Morgan Roe . . . LA-based QTrade Teas & Herbs, which claims to be largest supplier of organic and fair trade tea in N America, has just completed expansion that boosts its capacity to pack 1- to 4-oz iced-teabags from 200K to 300K bags per day, or 10K cases. Overall, QTrade says it can blend 40K lbs of tea daily and warehouse up to 3 mil lbs of tea and spices.  

Zenith Int'l is jumping into bev-entrepreneur conference racket, teaming with MyDrink Beverages consultancy to launch Drinkpreneur Live in London on Jun 11. Styled as Europe's first biz accelerator event for new bev brands, it will be held at Holiday Inn in Camden section of city and feature presentations on bev biz essentials and networking time with established bev experts, much as BevNet Live franchise has done in US. Panel of industry judges from cos like Tate & Lyle, Tesco and Innocent will evaluate attendees' concepts and finished items. Thru end of May, entrepreneurs can submit products for evaluation to Drinkpreneur.com, which contains further details of event.  

> Kraft's 121-year-old Maxwell House coffee brand has undertaken first phase of extensive rebranding aimed at increasing its relevance to younger consumers in barista-driven coffee world. It's debuted new packaging graphics and logo that play up the brand's iconic coffee drop image, along with new marketing campaign, "Say Good Morning to a Good Day." As part of campaign, it's bringing back traditional "good to the last drop" tagline, compliment initially paid by Theodore Roosevelt during visit to Maxwell House hotel in Nashville in 1907. New TV ad hopes to reach Millennials by positing brand as champion of progress that gets people off to a good start each day, in activities like selling an old car, applying for a job or getting their first apartment.  

Polar Beverages, whose eponymous seltzer line swept south from New England into NY a coupla years ago, continues to quietly broaden reach thru US, even as it resorts to gambits like a St Patrick's Day-timed Irish Coffee flavor to keep things fresh. By now Polar Seltzer has graduated to being largest branded sparkling water in country, per Nielsen, despite having only 26% ACV, noted vp John Wetzonis. Even that 26%, tho, reps continued progress from what not long ago was regional New England brand. By now, brand is available in about half the country, solidly south thru Mid-Atlantic and edging increasingly into southern markets like Ga and Fla via some of larger chain customers. (Recall, Polar acquired major bottling facility in Ga a coupla years back.) It boasts such established DSD houses as Central in Chicago, Intrastate in Detroit and Marsh Foods in Ind. In market like Fla where DSD options are more constrained, co is content to rely on retailers' systems until compelling option emerges. Overall, "I'm really pleased with our distribution network," Wetzonis said. He said brand has ridden effective packaging upgrade over past coupla years, as well as increase in variety to encompass familiar formats like 20-oz, half-liter and 2-liter bottles, 8-oz cans and 12-pack cans. Last month's small-batch run of Irish Coffee was in keeping with owner Ralph Crowley's dictate to "keep it fresh," John noted, saying co's ability to produce its own products abets its ability to offer limited-time summer and winter seasonal offerings and small-batch entries. Against Talking Rain's Sparkling Ice juggernaut, Polar has launched DSD-targeted extension called Polar Frost that goes out at similar 10 for $10 and has been successful enough for co to have difficulty keep up with production, Wetzonis claimed.  

Asian food guru Bruce Cost may be soft-spoken, low-key kinda guy, but unveiling of his new production plant in Brooklyn on Sun showed he and partner Terry Tang have got plenty of ambition for Bruce Cost Ginger Ale. Plant located in still-industrial stretch of gentrifying Bushwick nabe occupies 20K-sq-ft footprint, including massive sterile production space for production of ginger ale concentrate from fresh ginger (for shipment to copacker) and equally large refrigeration space. Tho co principals were scarce on details and and production space was closed, Cost said plant can support brand's growth to size 20X what it is now, on track this year for well beyond 200K cases. He said given unprecedented production process, which starts with unpeeled ginger from China, array of 200-gal tubs and ancillary equipment were custom-devised for task, with steam recycled for cooling purposes.

Need for new space occurred when Tang sold to Korean conglomerate his massive noodle and dumpling plant in nearby Williamsburg, where BCGA was housed in jury-rigged space. Tho ginger ale segment is crowded, BCGA has stood out by ginger-intense product, employing 1K lbs of China-sourced unpeeled ginger for every coupla thou cases, as well as Cost's reputation as authority on ginger, on which he penned definitive book. Recall, he'd opened string of highly regarded Asian-themed restaurants in Bay Area, then teamed with Chicago's Rich Melman to refine Big Bowl concept, which was sold to Brinker Int'l (and eventually repurchased by Melman). Ginger ale produced in restaurants was big seller, and Cost's association with Tang finally offered infrastructure to offer it in bottled form starting 3 years ago. It's now offered in Original, Jasmine Tea, Pomegranate, Passion Fruit and 66-calorie "66" sku's. Original is also out in 4-packs of 12-oz slim cans.

Corporate vibe melds Asian and artsy Brooklyn themes. Asian theme was flagged by traditional Chinese blessing to open plant, featuring roast pig, chicken, fish and dragonfruit. (Upstairs, Cost had himself prepared repast of dumplings, summer rolls and other Asian staples.) "We're ambitious: we're not going to sit around and be a small boutique beverage," Cost told guests who included former NYC comptroller and rising Asian political star John Liu. Noted Tang: "We're now 100% Brooklyn." Artsy aspect was flagged by lobby murals of line art from artist Shantell Martin; for another wall, co has commissioned Natural History Museum dioramist to create tableaux chronicling spice trade and creation of modern style of ginger ale in 1907 by Canadian pharmacist John McLaughlin. Above production space is expansive "patio" overlooking warehouse area and outfitted with wet bar, as site for tastings and educational sessions about ginger. Beer taps may be added to explore those synergies. Main wall of patio sports scripted subway-graffiti-style "Gingerale."

Expanding staff is working recently enlisted Polar Beverage in New England and such foodservice customers as Chipotle Grill's fledgling Shophouse chain, which will add 20 more units next year. Brand is growing quickly in Canada and has launched in Japan. It's garnered presence on HBO hit show Girls, and at Twitter's request was bev sponsor for social media co at recent South by Southwest Interactive conference. No pay to play on either occasion, Cost said. Entry into Polar will be backed by crew drives this summer on Cape and Nantucket. Co continues to pound pavement for West Coast copacker willing to handle unfiltered product like BCGA.  

NY's biggest NA-only distributor, Big Geyser, turned Marriott Hotel in Uniondale, Long Island, into personal brand playground this past Fri and Sat, drawing top brass from several supplier-exhibitors as it geared up troops for spring and summer selling season. By now, BG coo Jerry Reda pegs it as largest NA-bev trade show on East Coast, taking over hotel's ballroom and lobby with sometimes elaborate supplier exhibits meant to excite sales force of huge NA house with reach into Long Island and Westchester. Parking lot was showcase for Monster Energy BMX bikers. As reported, BG has been on new-brand roll past year, picking up Monster Energy, Sparkling Ice, V8 and most recently Monster's Hubert's Lemonade sibling brand. It retains brands that have segued to other systems in most parts of country, including Vitaminwater, Muscle Milk and Illy Caffe, and broad array of earlier-stage brands such as Hint, Purity Organic and Grown Up Soda. Suppliers bear costs of show, and often send their top execs, who this year included Sparkling Ice ceo Kevin Klock, Body Armor co-owner Mike Repole, Honest Tea ceo Seth Goldman and Hubert's chief Tom Hicks. BBI wasn't invited to supplier presentations on Sat, but gleaned some brand updates while wandering expo on Fri. Some highlights, with more to follow next issue:

Vitaminwater Ready to Cut Over to Cane Sugar Next Month Glaceau booth heralded redesign of Vitaminwater label, along with cutover to cane sugar as sweetener in May, as owner Coca-Cola tries to resuscitate fortunes of brand that's been on severe skid in recent months. Glaceau chief Shane Grant, relocating from Canada, has been delayed by illness from hitting ground running but is ready to push hard to recover premium status of brand, buttress presence in accounts like Whole Foods that have been skittish about sucralose as sweetener, and work newly launching Vitaminwater Energy and Vitaminwater Zero Drops (BBI, Oct 14) to inject some pizzazz into brand. Recall that in Geyser's hands, NY has remained one of last bastions of brand's premium status, tho even BG was pushed into unprecedented discounts last fall as KO brass at time tried to hit volume # to close out year.

Nesquik Teams with Girl Scouts for Limited-Time SKUs Nestle is lookin' to jazz up interest in its shelf-stable single-serve milks this Aug with pair of limited-time offers that tie to Girl Scouts via play on classic cookie flavors: Thin Mints and Caramel Coconut, both using lowfat milk that clocks in at 100 calories per 8-oz serving. (Items come in 14-oz PET bottles.) Tie-in builds on prior link via Nestle Crunch candy bars in renditions of 3 Girl Scout cookie flavors, which generated $11 mil in sales in initial year, 2012, and Coffee-Mate Girl Scouts line that's generated $8.5 mil in sales since 2013 debut. LTO milk sku's will be available thru holiday season, or until production run is depleted.

BLK Water Puts Feet on Street to Explain Brand Premise Now in its 3d year, black-colored BLK water is among latest additions to BG portfolio on account of aggressive commitment that overcame distributor's skepticism, both parties noted. Brand, which has plied NJ via Peerless beer house, has committed 10 people to market and set full slate of events. After successful tie-ins with Housewives of NJ TV franchise, it hopes to get further lift with role in Caroline Manzo-starring spinoff Manzo'd with Children. Brand previously moved in NY via Abraham Foods. Broadliners like UNFI, Kehe and Haddon House remain in mix for certain channels. BLK is pitched as prehistoric water with pH of 8.5 that's full of beneficial minerals like fulvic acid, which naturally turn water black, tho that takes fair amount of explanation to consumers. Core line is buttressed by stevia-sweetened flavors, all going out at $1.99-2.49.  

State Sen Bill Monning's proposed bill to require retailers to post warning labels wherever soft drinks are sold in Calif "cleared its first legislative hurdle" last week, reported Santa Cruz Sentinel Daily Democrat. Looks like Sen Monning, who'd also sponsored a failed bill to tax sugared bevs, leaned on allies to keep warning bill moving. "You have asked me and I have agreed to give you a courtesy vote to allow it to get out of committee, but whether I will be on floor for a 'positive' vote, I don't know," Sen Lois Walk told Monning directly during committee hearing. "There are parts of it that are going to need a little work," she added. Recall, under proposal, retailers could be fined up to $500 for failing to post warnings wherever bevs are sold. Warning would read as follows: "STATE OF CALIFORNIA SAFETY WARNING: Drinking beverages with added sugar(s) contributes to obesity, diabetes and tooth decay" . . . Republican congressman from Kans and Democrat from NC have intro'd bill that would prevent states from enacting GMO labeling requirements, in effort to prevent mishmash of state mandates. Bill intro'd by Reps Mike Pompeo and GK Butterfield as "Safe and Accurate Food Labeling Act of 2014" (HR 4432) was hailed by American Farm Bureau for starting "national-level discussion that will affirm FDA's role in assuring consumers about GMO safety and reduce the confusion that would result from a patchwork of state labeling initiatives," CQ Roll Call reports.  

Coca-Cola Shares Edge Up on Benign Q1 Report; Vision 2020 Goals Are Doable, CEO Kent Maintains

Coca-Cola began today trading up about $1.50 up in $40 range thanks to early morning Q1 earnings report that did enough to assuage skeptics that co is able to find pockets of growth, despite challenges of economy, foreign exchange and ongoing CSD declines. Coming at time that co and its Vision 2020 strategy seem to be enduring unprecedented skepticism, chmn/ceo Muhtar Kent didn't even wait for scheduled 9:30 AM investor call before going on offensive, appearing on CNBC immediately after 8 AM release of report to herald that "momentum is beginning to come back." Goldman Sachs' Judy Hong had predicted that report might be enough to provoke "modest relief rally," and that seems to be what we're getting, despite such disappointments as 8% plunge in N Amer profits. "We don't think it is a great result," Muhtar later allowed in Q&A with analysts, but it's a step in the right direction. Throughout call, he maintained that 3-4% annual volume growth envisioned in Vision 2020 remains doable goal of KO. Co "would be disappointed if we do not fall within the corridor of our long-term volume growth within the balance of the year," Kent said. Challenged as to viability of Vision 2020 by Morgan Stanley's Dara Mohsenian, whose recent deep dive into KO had concluded that CSD declines are secular rather than cyclical trend, Kent was undeterred: "No changes as far as my perspective is concerned . . . our entire team as well as our bottling partners feel the same way."

For qtr, net revenues declined 4% to $10.58 bil, tho they were up 2% excluding effects of foreign currency and structural events. Revenues were down in every region except Europe (+10%). Operating income slipped 1% to $2.38 bil but would have risen 7% excluding effects of forex and structural changes, despite acceleration of marketing investments, which will grow by $400 mil this year. Tho volume growth came to just 2%, KO boasted hot pockets of growth such as China, up 12%, India and Russia, both up 6%, and Brazil, up 4%, with core N Amer market flat. Importantly, given their ability to drive profitability and consumer transactions, cold-box packs did well in emerging markets: China, up 18%, Indonesia (+9%), Vietnam (+8%), Brazil (+5%).

Sparkling bevs (incl energy drinks) were down 1% globally, hurt particularly by decision of bottling partner CCE in England to maintain pricing discipline, sending volume skidding by double-digits during transition from 2-liter bottle as core package to 1.75-liter bottle. But noncarbs grew 8% worldwide, with juices/juice drinks, iced teas, bottled water and sports drinks all contributing, KO said. Clearly stung by criticism that co hasn't done enough to diversify away from CSDs, KO brass again stressed progress in this segment, now about one-quarter of global volume and including 11 brands doing $1 bil or more at retail. They cited such briskly growing juice brands as Simply and Pulpy, and tea brands like Honest Tea, Gold Peak and Sokenbicha.

Perhaps surprisingly, there were no questions from Wall Streeters about 2 recent hot-button topics: KO's controversial equity plan, and whether co has greater interest in participating more fully in energy drink segment.

Volume Flat in North America Tho volume was flat in N Amer, KO claimed continued gains in volume and $$ share. CSD volume sagged 1% with flavored brands a bright spot (including Fanta +3%, Sprite +1%). Noncarb volume grew 3%, including 9% gain for Powerade, thanks in part to lift from new Powerade Zero Drops, and Simply juice brand up 10% Price/mix for CSDs edged up 2% but overall was even, including noncarbs. Comparable currency-neutral operating income fell 8%, in part reflecting 1 less selling day in qtr and shift of Easter holiday to Q2.