Inflation may be hitting people's wallets but the appetite for snacks is still high. This comes on the back of PepsiCo (PEP, $169.50) reporting a 5.2% increase in revenue in its latest quarter from a year earlier, as prices on average rose 12%. The company stated that it benefited from strong sales of its snacks and packaged foods. Net sales jumped to over $20.2 billion better than Wall Street’s forecast for $19.5 billion. PepsiCo said it now expects sales to grow 10% organically in 2022, adjusting for acquisitions, divestitures and currency movements. That’s higher than the 8% it forecast three months ago, marking the second straight quarter in which it has raised its target for organic sales growth.
PepsiCo has increased the prices of its product portfolio, which includes Gatorade and Doritos, by 12% in the three months to mid-June. That increase was lower than the inflation it had. CFO Hugh Johnston said they had been able to reduce internal costs and rely on their digital investments to more accurately manage individual stores’ inventory. The company was also looking at cutting costs with cheaper packaging and a more cautious hiring approach.
Why it matters
By now it's little surprise that the pandemic-induced disruptions to the global supply chain and surging raw material costs are affecting every global business. Moreso those within the food and drink industry. Despite its positive earnings call, Pepsi is naturally cautious of the future, especially with inflation set to deepen further. This also comes on the back of the fact that Coca-Cola (KO, $62.67) and PepsiCo have a near duopoly on the packaged foods market and have more wiggle room than most on how much they can hike prices.
