Pepsi's Eyes Are Set on the Future

PepsiCo Inc PEP raised its revenue outlook after its quarterly revenue and earnings topped estimates on Tuesday, despite supply chain challenges and inflationary pressures on the labor, transportation, and commodity markets. However, the stock fell 1% in premarket trading as beverage sales slowed down.

Fiscal Third-Quarter Results

Revenue for the quarter that ended on September 4^th rose 11.6% and amounted to $20.19 billion, exceeding the expected $19.39 billion, resulting in adjusted earnings per share of $1.79 exceeding the expected $1.73. However, profit fell from $2.29 billion, or $1.65 per share, a year earlier to $2.22 billion, or $1.60 per share as costs increased with selling, general and administrative expenses rising from $6.92 billion to $7.64 billion.

Organic revenue, its core growth metric that adjusts for items like foreign-exchange translation, acquisitions, and divestitures, has been noisy lately thanks to demand swings tied to the pandemic, and this time around, it rose 9% and amounted to $1.79 per share.

Segments

For the quarter, the North American beverage business reported organic revenue growth of 7% after bouncing back 21% in the prior quarter, implying that growth has moderated. But the food service business, which includes sales to restaurants, stadiums, and college campuses saw double-digit net revenue growth due to the effects of the global vaccination campaign.

Frito-Lay's organic revenue increased by 5% as consumers maintained many of their pandemic snacking habits, with the company gaining market share in the salty and savory snack categories.

Quaker Foods North America, which has been the most challenged of Pepsi's business units, was the only segment to report shrinking volume. It also reported the largest drop in operating profit despite seeing its organic revenue increase by 1%.

Full Year

Organic revenue expectations have been raised from 6% to 8%, whereas analysts expected 9.5%. Pepsi has also reiterated its forecast for core constant currency earnings per share of 11% growth whereas analysts were forecasting full-year earnings growth of 13%.

A Game-Changing JV

Chief Executive Ramon Laguarta revealed in mid-September a new initiative called "Pep+" that is meant to change the company's operations with a focus on sustainability. The company announced a joint venture in January called The PLANeT Partnership with Beyond Meat Inc BYND, targeting to release a range of new plant-based snacks and drinks by early 2022. The relative newcomer to the food universe is also one of the top creators of meat substitutes, allowing Pepsi to position itself for a more sustainable and healthier era.

Its goals also include slashing plastic use, reducing sodium and added sugars in its products as well as investing in regenerative agricultural practices. Pepsi will also be incorporating more diverse ingredients, particularly chickpeas, plant-based proteins, and whole grains into its portfolio.

Summing Up…

The food industry is facing higher costs of ingredients as well as materials, including cooking oil and steel. Costs for freight, fuel, and labor are also on the rise. The food and beverage giant is "carefully navigating this dynamic and volatile environment shaped by supply chain complexities and increased costs" but also thinking ahead.

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