PepsiCo predicted inflation would stay elevated for the rest of the year, and said it remained open to raising prices further after seeing limited pushback from consumers so far.
The New York-based drinks and snacks group experienced a rate of inflation during its second quarter that was “well in the teens”, chief financial officer Hugh Johnston told the Financial Times.
“We certainly do expect that to persist,” Johnston said, and that “further” actions to raise product prices or cut costs may be needed.
PepsiCo raised prices on its portfolio of products, which includes Gatorade and Doritos, by 12 per cent overall in the three months to mid-June. That increase was below the inflation rate it experienced, Johnston said, because it had been able to cut internal costs and lean on its digital investments to manage inventory more precisely at individual stores.
“So far for us, there hasn’t been much reaction from the consumer [to the price increases],” Johnston said, noting that its volumes were up by between 3 and 6 per cent around the world. The company’s products represented “an affordable treat . . . that lots of people are still finding ways to afford”, he added.
Consumers’ willingness to stomach the price increases helped underpin a forecast-beating second quarter in which PepsiCo reported a 5.2 per cent year-on-year jump in net revenue to more than $20.2bn, beating Wall Street’s forecast for $19.5bn.
PepsiCo said it now expected revenue to increase 10 per cent in 2022 on an organic basis, which adjusts for acquisitions, divestitures and currency fluctuations. That is up from the 8 per cent it forecast three months ago and marked the second quarter in a row in which it has boosted its organic revenue growth target.
The company exercised some caution and kept its forecast for core full-year earnings steady at $6.63 a share, 6 per cent above 2021.
While sales volume growth in the second quarter matched that of the first, markets in Latin America, the Middle East, Africa and Asia Pacific helped offset contractions in its main markets of Europe and North America. Snack and beverage volumes in Europe were down 7 per cent and 8 per cent, respectively, compared with a year earlier.
However, the impact of Russia’s war against Ukraine led to a $1.4bn pre-tax impairment charge, higher than PepsiCo had flagged three months ago, which pushed net income down to $1.43bn. Analysts surveyed by Refinitiv had expected about $2.4bn, excluding those charges. Johnston said the non-cash charge was due to the higher weighted average cost of capital currently prevailing in Russia, which had reduced the value of its assets there.
Chief executive Ramon Laguarta said he was “pleased” with the latest results “as our business momentum continued despite ongoing macroeconomic and geopolitical volatility and higher levels of inflation across our markets”.
PepsiCo shares were up 0.4 per cent to $171.20 in morning trading on Tuesday, leaving them about 3.5 per cent below a record high struck in late April following the company’s first-quarter results.