Snacks and Beverages Sales at PepsiCo were Stronger than Expected because of Price Hikes

Boosted by higher snack and drink prices, the company posted higher quarterly earnings and revenue on Thursday.

As a result of those price hikes, volumes across the company's food business fell 2% globally. According to projections, inflationary pressure will persist in 2023, which means Pepsi will sharpen its "revenue management."

A rise of more than 1% was recorded in shares of the company.

Refinitiv surveyed analysts and here is what was expected by Wall Street based on the company's report:

• Shareholders' equity: $1.67 adjusted, compared to the expected $1.65
• There is an expected revenue of $26.84 billion versus $28 billion

According to the company, it earned $418 million, or 37 cents a share, in the fourth quarter of last year, down from $1.32 billion, or 95 cents a share. The company predicted higher interest rates would lead to the write-down of some of its brands, including SodaStream and Pioneer Foods.

When impairment charges, proceeds from selling its juice business, write-downs of Russian assets, and other factors are excluded from Pepsi's earnings per share, the company earned $1.67.

Revenues reached $28 billion, an increase of 10.9%. When acquisitions and divestitures are removed, organic revenue increases by 14.6%.

It was actually Pepsi that experienced a decline in demand during the quarter. In Quaker Foods' North American beverage division, volume fell by 2% and 7%, excluding pricing and currency fluctuations.

Among the bright spots was Pepsi Zero Sugar, which saw a 26% increase in volume. The drink is expected to be a success, according to executives. After rival Coca-Cola updated Coke Zero's recipe roughly a year ago, the company announced in mid-January that it revamped the formula. On Sunday, Pepsi will run two Super Bowl ads promoting Pepsi Zero Sugar as part of the relaunch.

Even though Doritos, Cheetos, Smartfood, and many other Frito-Lay brands experienced double-digit revenue growth, the company reported flat volume for the quarter.

According to Pepsi, organic revenue will grow by 6% in 2023, and earnings per share will increase by 8%. Despite the economic downturn, Wall Street expects net sales to rise 3.5% and earnings per share to rise 7.3%.

What would be the impact of a downturn in volumes? Hugh Johnston, CFO, told analysts on a conference call that they might be down a little bit.

As for the second half of 2023, he expects the U.S. and some developed markets to undergo a "mild" recession.