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PepsiCo Rides On Price Increases To Lift Annual Forecasts

By Dave Simpson

PepsiCo Inc raised its annual revenue and profit forecasts on Wednesday 12 October, powered largely by the multiple price increases the soda and snack giant had made to cushion the impact of rising costs.

Details

The company's shares rose 2.3% in premarket trading on Wednesday 12 October as it also trounced third-quarter revenue estimates.

Consumers, wrestling with a relentless surge in inflation, are eating more at home than at restaurants as they cut back on discretionary spending. A trend that has benefited US packaged food makers like PepsiCo that offer everything from snacks to sports drinks.

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Global packaged food makers are also grappling with higher costs of many commodities and supply chain pressures that have been aggravated by the Russia-Ukraine conflict.

A near-duopoly in the carbonated drinks market with Coca-Cola has helped PepsiCo raise prices with little push back from consumers, while its strong market position in snacks has also buffered the company.

The price increases helped boost revenue across all its segments, especially its biggest two divisions of North America beverage and Frito-Lay.

The beverage business, which houses brands such as Mirinda, 7UP and Gatorade, posted a 1% increase in volume, signaling resilient demand from consumers.

The company said it expects 2022 organic revenue to rise 12%, compared to a prior forecast of a 10% increase. PepsiCo had raised its revenue expectations in April and July.

PepsiCo now expects fiscal 2022 core constant currency earnings per share of about $6.73, compared to its previous forecast of $6.63.

Net Revenue

The company's net revenue rose about 9% to $21.97 billion in the third quarter ended 3 September, beating analysts' estimates of $20.84 billion, according to IBES data from Refinitiv.

UPDATE 4-PepsiCo Signals Resilient Demand As Price Increases Boost Forecasts

The above news was followed by the following update:

PepsiCo Inc on Wednesday 12 October raised its annual forecasts for revenue and profit on the back of fresh price increases for its sodas and snacks to battle runaway costs while signaling resilient demand.

Shares rose 4% after the company also beat third-quarter estimates that comes amid gloomy expectations for corporate results due to surging inflation and rising interest rates. Rival Coca-Co, set to report on 25 October, advanced 2%.

PepsiCo's domination of the carbonated drinks market with Coca-Cola KO.N has helped it raise prices with little impact on demand, while a shift to eating more at home than at restaurants has buffered its snacks business.

"In stressful times, we're kind of the affordable luxury, so a simple snack or a beverage... is a relatively small amount of money," chief financial officer Hugh Johnston told Reuters.

"We see our consumer as being continuing to be remarkably healthy," he said.

Higher prices boosted revenue across all segments, especially in its biggest two units of North America beverage and Frito-Lay. Average prices jumped 17% for the quarter ended 3 September, while organic volume slipped 1%.

The beverages business, its largest, which houses brands such as Mirinda, 7UP, and Gatorade, however, posted a 1% increase in volume.

PepsiCo's results once again demonstrates its brand value strength in an inflationary environment, said Garrett Nelson, senior equity analyst at CFRA Research.

The company now expects 2022 organic revenue to rise 12%, from 10% earlier, the third time it has raised its forecast this year.

Annual core constant currency earnings per share forecast was raised to about $6.73 from $6.63, even as the company warned on continued freight and commodity price pressures and a stronger dollar.

For the quarter, PepsiCo earned a better-than-expected profit of $1.97 per share on revenue of about $22 billion.

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

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