PepsiCo raises forecasts after Q3 boosted by higher prices
PepsiCo raised its full-year revenue and earnings forecast Wednesday after stronger-than-expected third quarter sales driven by higher prices.
The Purchase, New York-based snack and drink maker said its sales volumes were down 1% from the July-September period a year ago. But pricing surged 17% as the company tried to recoup double-digit price increases for raw ingredients as well as higher spending on transportation.
PepsiCo said higher prices don’t seem to be deterring customers, who consider brands like Frito-Lay and Cheetos an affordable treat.
“We are carefully watching what happens with the consumer. We obviously exited the third quarter with the consumer still very healthy in terms of our particular categories,” PepsiCo Chief Financial Officer Hugh Johnston said Wednesday during a conference call with investors. “I’m not sure that’s true broadly with housing and other big ticket purchases”
Broader U.S. grocery prices continued to rise during the third quarter. They have soared 13.5% over the past year, the largest 12-month increase since 1979.
Johnston noted that even with the higher prices, PepsiCo’s gross margins fell due to rising costs. The company also spend more on advertising, including a double-digit increase in marketing for Frito-Lay.
PepsiCo said it now expects full-year organic revenue __ which strips out the impact of acquisitions, divestitures and foreign exchange rates __ to rise 12%, up from 10% previously. The company said it expects earnings per share to rise 10%, from 8% previously.
PepsiCo Inc. shares rose 4% to $169.11 in morning trading.
The company said third-quarter revenue grew 9% to $21.97 billion. That was higher than the $21 billion Wall Street expected, according to analysts polled by FactSet.
Net income rose 21% to $2.7 billion. Excluding one-time items, such as a manufacturing shutdown in Russia, the company earned $1.97 per share. That also beat Wall Street’s forecast of $1.84.