PepsiCo raises prices and reduces sizes to offset rising costs

• Pepsi reported net income of $1.43Bn or the second quarter, down from $2.36 billion a year ago.
• Company anticipates costs to increase considerably more in the second half of the year.
• PepsiCo took a $1.17 billion charge for the Russia-Ukraine conflict-related quarter.

As prices rose and consumers paid more for its Doritos crisps and Gatorade beverages on Tuesday, PepsiCo increased its revenue forecast for the year.

The multinational food and beverage company stated that it intends to continue reducing product sizes and using other strategies to manage increasing costs because it anticipates costs to increase considerably more in the second half of the year.

Hugh Johnston, chief financial officer of PepsiCo, said on CNBC’s “Squawk Box”: “We are facing inflation like everyone else, and we think that is going to persist for a while. But we are taking enough pricing to be able to manage the inflation, and our focus is really much more on how do we drive costs out of the business.”

In premarket trading, the company’s shares increased by less than 1%.

According to a Refinitiv survey of analysts, the following discrepancy exists between what the firm reported and what Wall Street was anticipating:

$1.86 adjusted earnings per share vs $1.74 anticipated

Revenue: $20.23 billion versus the anticipated $19.51 billion

Pepsi reported net income of $1.43 billion, or $1.03 per share, for the second quarter, down from $2.36 billion, or $1.70 per share, in the same period last year.

Due to rising freight and commodity prices throughout the quarter, the company’s profits decreased. Pepsi is intensifying its cost management activities and employing “mix and assortment options,” like reduced quantities for its variety packs, according to CEO Ramon Laguarta in prepared remarks. According to Johnston, the business may occasionally decide to lower the quantity of chips in a bag rather than raise prices.

While increasing expenses reduced its profits, the Russia-Ukraine war had a greater impact on PepsiCo. It revealed a $1.17 billion charge for the conflict-related quarter. Pepsi announced that it was halting sales in Russia, with the exception of specific necessities like baby formula, following the Kremlin’s invasion of the neighbouring nation last quarter. Currently, the business is attempting to phase out or reposition a few of its Russian dairy and juice brands.

The company earned $1.86 per share after things were taken out. To $20.23 billion, net sales increased by 5%. Organic revenue, which excludes the effects of purchases and sales, increased by 13%.

Frito-Lay Cheetos and Doritos sales growth contributed to a 14% increase in organic revenue in North America. Volume, which doesn’t take into account pricing or currency fluctuations, however, fell by 2%. According to Laguarta, the division increased its market share during the quarter.

Although the company’s North American beverage division’s volume decreased by 1%, organic revenue increased by 9%. In the quarter, Gatorade, Aquafina, and Lifewtr all had double-digit increases.

Only one domestic division in Pepsi’s portfolio, Quaker Foods North America, reported volume growth. Due in large part to double-digit increases in rice and pasta, oats, and cookies, its organic sales increased by 18%. Volume increased by 2%.

Pepsi now anticipates organic revenue growth of 10% in 2022, up from its previous projection of 8%. The company increased its revenue prediction for the second straight quarter without changing its earnings guidance. Pepsi continues to project an 8% increase in core profits per share in constant currency.

Despite macroeconomic and geopolitical turbulence, Laguarta stated that the company anticipates its North American business to be resilient and the majority of its overseas markets to be solid.

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