PepsiCo forecasts weak annual profit as price hikes, inflation weigh on demand

PEPSICO on Thursday (Feb 9) beat analysts’ estimates for fourth-quarter revenue and profit, benefiting from price hikes for its sodas and snacks to tackle rising costs.

A near duopoly in the carbonated drinks market with Coca-Cola helped PepsiCo raise prices over the last few quarters with little pushback as it battles higher freight, commodity and labour costs, as well as the impact of a stronger US dollar on international revenue.

PepsiCo expects inflationary pressures to persist in 2023 and even though it sees resilient consumer demand, the company said it was keeping an eye out for a shift in consumer spending.

The Frito-Lay maker forecast annual profit below Wall Street estimates, signalling multiple price hikes were likely to dampen demand for its sodas and snacks amid a cost-of-living crisis.

PepsiCo’s shares rose 1.6 per cent to US$174 in premarket trading after it also raised its annualised dividend by 10 per cent to US$5.06 per share.

The company’s North America beverages unit, which houses brands such as Mirinda, 7UP, and Gatorade, posted an organic revenue growth of 10 per cent in the fourth quarter on steady demand.

PepsiCo’s Quaker Foods North America unit saw operating profit fall about 3 per cent to US$188 million as higher production costs took a bite out of margins.

On an adjusted basis, the company earned US$1.67 per share in the fourth quarter, beating estimates of US$1.65, according to Refinitiv data.

PepsiCo reported net revenue of about US$28 billion, compared with estimates of US$26.84 billion.

The company’s average prices jumped 16 per cent, while organic volume slipped 2 per cent.

PepsiCo said it expects fiscal 2023 core constant currency earnings of US$7.20 per share, compared with estimates of US$7.28. REUTERS