PepsiCo boosts profit outlook for this year

PepsiCo Inc. is winning the inflation battle so far, successfully passing on surging commodity costs by persuading consumers to pay more for their soda and chips.

Higher prices for raw commodities like sugar and increased wages for labor led the snack and drink giant to charge customers about 12 percent more on average in the second quarter, the company said Tuesday. And though inflation-wary consumers only slightly increased the amount of PepsiCo food and beverages that they purchased, the higher prices enabled the company to increase its profit outlook, saying it expects revenue to grow 10 percent this year.

The new guidance reflects “the strength and resilience of our categories and consumer demand trends,” PepsiCo said in a statement. As it’s one of the first major industry competitors to report second-quarter data, investors are closely watching PepsiCo for insights into how shoppers are behaving as persistent inflation stretches their ability to absorb price increases.

“Nobody’s isolated from inflationary pressures,” Chief Executive Officer Ramon Laguarta said on a call with analysts.

Traders weren’t overly impressed with PepsiCo’s performance, with its shares edging up 0.2 percent to $170.75 in New York trading at midday. The stock is down less than 2 percent this year, outpacing the 19-percent decline of the S&P 500 Index.

The maker of Mountain Dew, Fritos and Quaker Oats had previously increased its revenue forecast in April, nudging it up to 8 percent from 6 percent. Profit and sales in the second quarter beat estimates, the company said.

PepsiCo reported sales of $20.2 billion in the quarter—just above analysts’ average estimate of $19.55 billion. Profit excluding some items was $1.86 a share, above the $1.74 estimate.

Muted volumes

That higher revenue came despite muted and mixed sales of chips and soda, an indication of the Purchase, New York-based company’s ability to pass its higher costs on to customers. Frito-Lay North America’s volume was down 2 percent, in part due to a temporary production glitch with the company’s hummus brand, Sabra. Quaker Foods North America was up 2 percent, and PepsiCo Beverages North America slipped 1 percent.

“Inflation was higher than 12 percent over the quarter, so we did need to fix some pricing,” Chief Financial Officer Hugh Johnston said in an interview. Pricing did affect volumes, he said, “but the volumes have held up well.” Johnston said that the company planned to increase productivity and cut its own costs through measures such as lower-priced packaging, but he said higher consumer prices are still likely this year.

The North American food and beverage business remained strong during the quarter, while demand for convenient foods helped international markets continue to perform “despite ongoing macroeconomic and geopolitical volatility and higher levels of inflation,” Laguarta said in the company’s statement.

Image credits: Bloomberg