PepsiCo Plans Ad Blitz to Buoy Its Soda Business

PepsiCoInc.PEP 2.14% said it would boost advertising for its cola brands in the U.S. and consider whether to separate or spin off its bottling operations as it seeks to reverse declines in its home market where it had been focusing on healthier drinks.

The snacks and beverage giant posted higher quarterly profits and sales as growth in its Frito-Lay food unit and in overseas markets offset sluggish demand for drinks like Pepsi cola and Gatorade in North America.

“The issue is in North America and the issue is really the last three quarters,” Chief Executive Indra Nooyi told analysts on an earnings call.

Company executives have been saying their plan to get the business back on track with increased marketing spending and new products such as Bubly sparkling water and a clear, lemon-lime Mountain Dew is working, but will take some time to show results.

Research suggests Pepsi’s “Pepsi Generations” campaign, which nods at the brand’s history, has increased connectivity to the brand, but it is too early to measure its impact on sales, Chief Financial Officer Hugh Johnston said. “With advertising you don’t flip a switch and the sales go up,” he said.

Ms. Nooyi also said the company is considering whether to run its bottling operations as a separate unit, spin them off into a stand-alone public entity or put them in the hands of multiple franchisees. Its chief competitor, Coca-ColaCo , is on track to complete a yearslong effort to refranchise its North American bottling system, an exercise that has allowed it to significantly cut costs, and analysts have surmised Pepsi could follow suit.

Ms. Nooyi said the company hasn’t ruled anything out and will take its time reviewing the options. “We want to make sure we don’t engage in financial transactions for the sake of financial transactions,” she said.

Analysts have raised the idea that Pepsi’s drinks business could be better operated separately from the snacks business. Executives pushed back on the call, saying the two sides are better together and more valuable to retailers.

Mr. Johnston said Bubly has exceeded expectations in terms of distribution and “has all the signs” of being a product that will stick around, but didn’t give specific sales figures. The drink expands PepsiCo’s presence in the rapidly growing sparkling water market, which grew 15% last year, according to Euromonitor. Ms. Nooyi has said she wishes the company launched Bubly years ago.

Ms. Nooyi acknowledged its Gatorade sports drink has been losing market share to new competition but said the trends will reverse themselves over time. One relatively new entrant, Body Armor, unveiled an ad campaign last week that paints Gatorade as outdated and less natural. The same day, PepsiCo said it was launching an artificially sweetened sugar-free version called G Zero. When asked whether the timing was intentional, Mr. Johnston said, “We’re Gatorade, we announce things on our calendar.”

Overall, PepsiCo reported revenue of $12.6 billion and net income of $1.3 billion, or 96 cents a share on an adjusted basis. Revenue in its North America beverages unit, which contributes about one-third of its sales, decreased 1%, or 2% on an organic basis, which excludes currency fluctuations, acquisitions and divestitures. Organic volume of beverages dropped 3%. The segment’s operating profit dropped 22%. Revenue increased 3% in its Frito-Lay North America segment, and was flat in Quaker Foods North America. Revenue and operating profit increased in international segments.

Write to Cara Lombardo at cara.lombardo@wsj.com

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