PepsiCo lifts annual forecasts again on price hikes, steady demand

9:45 am Thursday, July 13th, 2023

By Ananya Mariam Rajesh

(Reuters) – PepsiCo Inc on Thursday raised its annual revenue and profit forecasts for the second time this year after the snacks and beverages giant comfortably beat quarterly estimates on price hikes and resilient demand.

Shares rose about 2% in early trading as the upbeat performance also eases investor worries over a demand slowdown from price hikes over the past two years to counter a jump in costs of everything from raw materials to transportation.

“In developed markets we see consumers still really doing quite well… they may be pulling back to some degree on the bigger ticket purchases… but we are an affordable luxury… people are still buying our products at a healthy rate,” Chief Financial Officer Hugh Johnston told Reuters.

Average prices jumped 15% in the three months ended June 17, while organic volume slipped 2.5%.

“This pricing is not only driving very strong top line, but it is also enhancing their margins, which is encouraging,” Wedbush analyst Gerald Pascarelli said.

PepsiCo said core gross margin expanded 130 basis points in the quarter, compared with 96 basis points a year earlier. That followed a 50 basis point increase in the first quarter.

Net revenue at its North America beverages unit, the company’s largest business which houses 7UP and Gatorade, jumped 10% in the second quarter, while volumes slipped 4%.

PepsiCo forecast 2023 organic revenue to rise 10%, compared with prior expectations of an 8% increase.

Annual core earnings per share expectation was raised to $7.47 from $7.27.

PepsiCo has a nice combination of good pricing, which seems to be holding pretty well and okay volumes that is translating into very solid results, said Markus Hansen, a portfolio manager at Vontobel Quality Growth that holds 3.09% of PepsiCo.

Net revenue rose 10.4% to $22.32 billion beating estimates of $21.73 billion, while adjusted profit of $2.09 per share topped expectations of $1.96, according to Refinitiv IBES data

(Reporting by Ananya Mariam Rajesh in Bengaluru; Editing by Sriraj Kalluvila)