PepsiCo Raises Its Profit Forecast As Demand For Its Soft Drinks Jumps; Planning To Increase Prices Of Its Products
PepsiCo Inc is planning to increase the prices of its products this year, the company said after it raised its full-year earnings forecast on surging demand for its soft drinks from COVID-19 pandemic-weary people flocking to restaurants and theatres.
Increased Raw Materials Cost
A host of factors, including disruptions in global supply chains and rising demand, has pushed up raw-material prices, forcing packaged food companies such as PepsiCo and rival Coca-Cola Co to pass on costs to consumers.
The inflationary trend was underscored by the latest set of data, which showed U.S. consumer prices rose by the most in 13 years in June.
PepsiCo's move to raise prices, likely after Labor Day, will also be used to offset higher advertising and marketing costs, which rose 30% in the quarter as the company looked to take advantage of a reopening U.S. economy, chief financial officer Hugh Johnston told Reuters.
Net revenue from beverage sales to schools, restaurants, stadiums and other such businesses in North America doubled in the second quarter. "Performance in the food service channels was very sudden after three quarters of negative growth," Johnston said.
"It opened up very rapidly and there was a lot of desire for people to get out as they got vaccinated."
Overall net revenue rose 20.5% to $19.22 billion in the quarter ended June 12, above expectations of $17.96 billion, according to Refinitiv IBES data.
Excluding items, PepsiCo earned $1.72 per share, above estimates of $1.53 per shares.
The company expects fiscal 2021 core earnings per share to increase 11%, compared with prior forecast of a high-single-digit increase.
PepsiCo said it would also expand an automation program to its manufacturing plants, warehouses and service centers, resulting in expected pre-tax charges of about $3.15 billion.
Johnston said potential job losses due to automation will be more than offset by employment growth in other parts of the company.
Pepsico shares rose about 2.5% to hit a record high in early trading.