PepsiCo raises profit forecast for this year |

PepsiCo Inc. so far, it is winning the battle against inflation by successfully managing rising commodity prices by persuading consumers to pay more for soda and chips.

The company said on Tuesday that higher prices for commodities such as sugar and higher labor wages led the snack and beverage giant to charge customers about 12 percent more on average in the second quarter. And while inflation-averse consumers have only modestly increased the amount of PepsiCo food and beverages they buy, higher prices have allowed the company to raise its earnings forecast, saying revenue will rise 10 percent this year.

The new guidance reflects “the strength and resilience of our categories and consumer demand trends,” PepsiCo said in a statement. With PepsiCo being one of the first major industry competitors to release Q2 data, investors are keeping a close eye on how buyers behave as persistent inflation limits their ability to offset rising prices.

“No one is isolated from inflationary pressures,” Chief Executive Ramon Laguarta said in a phone call with analysts.

Traders weren’t overly impressed with PepsiCo’s results, which rose 0.2 percent to $170.75 in New York trading at noon. Shares have fallen less than 2 percent this year, outpacing a 19 percent decline in the S&P 500.

The maker of Mountain Dew, Fritos and Quaker Oats previously raised its April revenue guidance from 6 percent to 8 percent. Second-quarter earnings and sales topped estimates, the company said.

PepsiCo reported sales of $20.2 billion for the quarter, just above the average analyst estimate of $19.55 billion. Earnings excluding certain items was $1.86 per share, up from an estimate of $1.74.

Muted volumes

This higher revenue came despite low-key and mixed sales of chips and sodas, demonstrating New York-based Purchase’s ability to pass on higher costs to customers. Frito-Lay North America’s sales fell 2 percent, due in part to a temporary disruption in production of Sabra-branded hummus. Quaker Foods North America was up 2% and PepsiCo Beverages North America was down 1%.

“Inflation was above 12 percent for the quarter, so we needed to lock in some prices,” CFO Hugh Johnston said in an interview. Pricing has affected volumes, he said, “but volumes have held up well.” Johnston said the company planned to increase productivity and cut its own costs through measures such as cheaper packaging, but he said higher consumer prices are still a possibility this year.

The North American food and beverage business remained strong during the quarter, while demand for fast foods helped international markets continue to operate “despite ongoing macroeconomic and geopolitical volatility and higher inflation,” the company said in a statement.

Image credits: Bloomberg