PepsiCo Inc. raised its sales and earnings estimates once again after a strong quarter, suggesting consumers are still willing to pay higher prices for its beverages and snacks.
Organic revenue will probably grow 10% this year after a 13% gain last quarter that exceeded analysts’ estimates, the company said in a statement. Earnings per share will likely increase by 12% at constant currencies in 2023 after also topping quarterly expectations.
With its product lineup — from Mountain Dew and Gatorade drinks to Fritos and Lay’s chips — PepsiCo’s results showed resilience even as consumers pull back amid high levels of inflation.
“We are still the affordable luxury,” Chief Financial Officer Hugh Johnston said in an interview. “We still have a lot of confidence in the consumer now. The job market is still very good, wages are still going up.”
Johnston said that the average price across a mix of the company’s products grew by 15% in the quarter, and that rise was equal to the average increase in prices the company paid for commodities such as corn, wheat and sugar.
‘Right in Line’
“The increase in commodity prices was right in line with the price/mix increase,” he said. Johnston said he expects the rate of price hikes to be lower in the second half of the year.
Some lower-income shoppers are visiting more stores to search for the best price they can find on products, Chief Executive Officer Ramon Laguarta said on a call with analysts.
“Even though we’re seeing lower-income consumers optimizing their budgets, we’re seeing the majority of consumers stay within their brands,” Laguarta said. “We’ve been able to raise prices and consumers stay within our brand.”
The stock rose 2.3% in trading before US exchanges opened. Frito-Lay North America garnered revenue of $5.9 billion in the quarter while the beverage unit reported sales of $6.7 billion.
Street Wrap: Pepsi Gains as Boosted Guidance Shows Confidence
The new guidance follows an earlier increase in April. PepsiCo’s main competitor in the beverage business, Coca-Cola Co., is scheduled to release its second-quarter earnings later this month.
Major beverage companies’ results may be overshadowed by a report, set for later this week, about potential health hazards associated with the artificial sweetener aspartame, which is widely used throughout the food and beverage industry.
Early reports have indicated that aspartame will be classified as “potentially carcinogenic” by the World Health Organization, although it’s considered safe by the US Food and Drug Administration. The report’s repercussions could affect PepsiCo and rivals.
“A big part of the volume growth over recent years has been lower-calorie products, so it could have a significant impact,” said Garrett Nelson, a beverage industry analyst at CFRA.
(Updates with CFO comments starting in fourth paragraph, CEO comments in seventh paragraph.)
