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Coca-Cola, PepsiCo Warn Of Inflation Bite As Higher Prices Lift Sales

By Dave Simpson

The world's top two cola makers, Coca-Cola and PepsiCo, have warned of pressure on profits this year from a relentless rise in costs after trouncing sales expectations on robust demand and price increases.

Costs

Costs from aluminum cans to labour and shipping have surged in the last year due to COVID-19 pandemic-induced global supply-chain disruptions, forcing companies across the packaged food industry to respond with price hikes.

However, with costs still rising and supply bottlenecks showing little signs of easing, analysts caution that the price hikes will likely not be enough to fully cushion the industry's profit margins.

Statements By PepsiCo Finance Chief

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PepsiCo finance chief Hugh Johnston told Reuters the company could potentially raise prices further later in the year if costs climb more than expected, and did not rule out some product shortages.

"We control our supply chain basically all the way to the shelf. That puts us in a relatively better position, but I wouldn't say we're not going to have challenges. We're not immune to that," Johnston said.

Statement By Coca-Cola CEO

The company's arch rival from Atlanta echoed a similar sentiment.

"Is it likely to be perfect this year? No, but we are doing the maximum we can to optimize our full availability," Coca-Cola CEO James Quincey said on an analyst call.

Adjusted Operating Margins

Coca-Cola's fourth-quarter adjusted operating margin fell to 22.1% from 27.3% a year earlier. PepsiCo's adjusted operating margin shrank 183 basis points.

Earnings Expectations

PepsiCo expects fiscal 2022 core earnings of $6.67 per share, below analysts' expectations of $6.73, according to IBES data from Refinitiv.

Coca-Cola forecast full-year adjusted earnings per share to increase 5% to 6% from $2.32 in 2021, compared with estimates of a 6% rise.

Analysts Largely Positive

Still, analysts were largely positive on the results.

Statement By Edward Jones Analyst

"The current impact on margins doesn't change our long-term outlook for Coke and Pepsi simply because eventually inflation should subside and the changes that both these companies have made internally should begin to shine through," Edward Jones analyst John Boylan said.

Revenue Figures

PepsiCo's fourth-quarter net revenue rose 12.4% to $25.25 billion, while Coca-Cola's adjusted revenue rose 10.1% to $9.47 billion in the fourth quarter ended 31 December from $8.60 billion a year earlier. Analysts had expected revenue of $8.96 billion for Coca-Cola, according to Refinitiv IBES data.

Coca-Cola Criticised For Plastic Pollution, Pledges 25% Reusable Packaging

The above news was followed by news that the Coca-Cola Company has said that it will aim for 25% of its packaging globally to be reusable by 2030, a move hailed by environmental groups who have called out the soft-drink maker for worldwide plastic pollution.

Coca-Cola is a top target for consumer, investor and environmental groups concerned about petroleum-based plastic single-use bottles clogging oceans, among other problems.

The company was the world's worst plastic polluter for the fourth year in a row in 2021, according to the global coalition Break Free From Plastic's annual report released in October.

"We hope that other companies will follow Coke's leadership and set reusable packaging targets," said the group's global corporate campaign coordinator Emma Priestland.

Reusable packaging includes containers that can be refilled with original product by companies or consumers, such as refillable fountain drink containers and glass and plastic bottles that are refillable or returnable, the cola maker said, referring to reuse guidelines by nonprofit Ellen MacArthur Foundation https://ellenmacarthurfoundation.org/reuse-rethinking-packaging.

In 2020, 16% of the company's packaging was reusable. That year, 90% of its refillable glass and plastic containers were collected, it said.

Coca-Cola's announcement on Thursday 10 February is "the first known goal of its kind" and "a welcome change in strategy," fund manager Green Century Capital Management said in a statement.

Green Century and activist investor As You Sow filed a shareholder proposal urging Coca-Cola to reduce single-use plastic. They are now considering whether to withdraw their proposal.

If Coca-Cola hits its new goal, it will be "easier to achieve our objectives of a World Without Waste, where we intend to collect back a bottle or can for every one we sell by 2030," CEO James Quincey said during the company's fourth quarter earnings call Thursday 10 February.

Eight in 10 American adults support government policies to reduce single-use plastic, according to a poll released on Wednesday by advocacy group Oceana.

Coca-Cola, PepsiCo and other international brands in January called for a global pact that included calls to cut plastic production, a key growth area for the oil industry.

Break Free From Plastic cleaned beaches in 45 countries and found nearly 20,000 Coca-Cola branded products, more than the next two largest plastic polluters - PepsiCo Inc and Unilever PLC - combined.

News by Reuters, edited by Hospitality Ireland. Click subscribe to sign up for the Hospitality Ireland print edition.

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