PepsiCo raises forecast for organic revenue growth

PepsiCo Inc. this week reported a 5% increase in net revenue in the second quarter and raised its outlook for full-year organic revenue to grow 10% from a previous forecast of 8%.

For the 12 weeks ending June 12, 2022, the Purchase, New York-based company reported $20.23 billion in revenue, versus $19.22 billion in the same period the prior year.

Revenue beat Wall Street’s forecasts. Analysts surveyed by FactSet estimated revenue would be $19.51 billion, Barron’s reported.

Year over year, operating profit declined to $2.1 billion from $3.1 billion.

PepsiCo Chairman and CEO Ramon Laguarta said in its July 12 earnings release the company was pleased with its second-quarter results “as our business momentum continued despite ongoing macroeconomic and geopolitical volatility and higher levels of inflation across our markets.”

Consistent with its previous guidance for 2022, PepsiCo anticipates an 8% increase in core constant currency earnings per share (EPS) while returning $7.7 billion to shareholders through $6.2 billion in dividend payments and $1.5 billion in share repurchases. PepsiCo anticipates 2022 EPS of $6.63, a 6% increase compared to 2021.

In prepared management remarks, PepsiCo said it delivered 13% organic revenue growth, with the North America and international businesses delivering 11% and 15% growth, respectively.

Frito-Lay North America was among the high-growth categories. It “delivered 14 percent organic revenue growth as consumers continue to navigate towards simple pleasures that offer value, convenience and variety,” PepsiCo management said.

Management added, “Frito-Lay gained market share in both the macrosnack and savory snack categories for the second quarter and year-to-date.”

PepsiCo posted its results on July 12, a day before the U.S. government reported that inflation in June soared by 9.1% over the last 12 months.

“During the 12 and 24 weeks ended June 11, 2022, we continued to experience inflationary pressures on transportation and commodity costs, which we expect to continue for the remainder of 2022,” PepsiCo stated in its 10-Q filing with the Securities and Exchange Commission. “A number of external factors, including the deadly conflict in Ukraine, the COVID-19 pandemic, adverse weather conditions, supply chain disruptions (including raw material shortages) and labor shortages, have impacted and may continue to impact transportation and commodity costs.”

PepsiCo Vice Chairman and Chief Financial Officer Hugh Johnston suggested the company may not have to pass down all the costs of inflation to consumers. He said PepsiCo has “been doing a pretty good job” driving “incremental productivity” on its “internal costs,” according to a transcript of PepsiCo’s earnings call with analysts.

“That puts us in a relatively better position when we’re faced with commodity inflation because we’re not necessarily forced to price it all through,” he said. “We can take a more consumer-centric approach to dealing with the inflation and the subsequent pricing.”

Some of PepsiCo’s peers are scheduled to report their second-quarter results in the coming weeks. The Coca-Cola Company will announce its results July 26, followed two days later by Keurig Dr Pepper Inc.

The share price of PepsiCo (ticker symbol: PEP) closed Wednesday at $170.10 on the NASDAQ, down 1.6% from $172.98 at the beginning of the year (Jan. 3). That’s not bad considering the increasingly dismal state of the broader stock market.

“The S&P 500 just experienced its worst first-half decline since 1970, falling over 20%,” Argus Research wrote in weekly commentary published July 11. “Even in the worst years of the dot.com implosion of 2000-2002 and the Great Recession of 2007-2009, things were not this bad.”