PepsiCo's third-quarter revenue of $20.19 billion increased by 11.6% accelerated strategic transformation early next year or price increases to cope with rising costs

Yangtze River Business Daily reporter Zhang Lu

PepsiCo is considering a new round of price increases, which could take effect early next year.

Recently, food and beverage company PepsiCo announced its financial results for the third quarter ended September 4, 2021. The company's third-quarter net revenue was $20.189 billion, compared to $18.091 billion in the same period last year, an increase of 11.6% year-on-year; net profit attributable to the company was $2.224 billion, compared to $2.291 billion in the same period last year.

In conjunction with the release of this latest financial report, PepsiCo expects organic revenue to grow by about 8 percent for the full year 2021 (previously expected to increase by 6 percent), with core fixed-rate earnings per share up at least 11 percent and core earnings per share up at least 12 percent.

However, PepsiCo said transportation and commodity costs were higher than expected in the third quarter of the fiscal year, and the company's chief financial officer, Hugh Johnston, said it may continue to raise product prices in the first quarter of next year in response to higher costs.

It is worth mentioning that in addition to Pepsi, in April this year, Coca-Cola CEO James Quincy said that due to the significant increase in raw material prices, the company is planning to increase the price of products, in addition to cleaning, Kimberly-Clark, Humel, Svenker and other multinational consumer giants have announced plans to increase the price of their goods.

In this regard, Chinese food industry analyst Zhu Danpeng said: "As a global beverage leading brand, Coca-Cola or Pepsi Price Adjustment will definitely guide the entire industry to follow the trend of price increases, but behind this round of price increases is a new round of survival of the fittest, large enterprises relatively speaking, should have the strength to increase prices, but small and medium-sized enterprises do not follow the trend to fall into a dilemma, this round of price increases or will accelerate the industry reshuffle. ”

Expected full-year organic revenue growth of approximately 8%

According to the performance report released by PepsiCo, in the third quarter of fiscal 2021 (as of September 4), the company achieved operating income of $20.189 billion, an increase of 11.6% and 5.06% year-on-year and quarter-on-quarter, respectively, higher than market expectations, and net profit attributable to the company of $2.224 billion, down 2.9% year-on-year. Organic revenue is expected to grow by about 8 percent in fiscal 2021, better than the previous forecast of 6 percent.

It is worth noting that PepsiCo's operating costs rose by more than 10% from July to September, and in addition to the increase in marketing expenses, the impact of supply chain shocks cannot be ignored. Due to the gradual lifting of restrictions caused by the recent epidemic, the demand for beverages in restaurants and theaters has surged, and the shortage of raw materials for beverage bottles and cans has gradually emerged.

Hugh Johnston, PepsiCo's chief financial officer, said the company was trying to overcome its current challenges on all fronts, with price increases early next year as a possibility. "In recent weeks, PepsiCo has raised the price of soda and snacks in North America, which is related to the impact of rising raw material prices on the packaged food industry, and prices are likely to rise in the first quarter of 2022 as the impact of commodity inflation is fully absorbed and locked in." He later added that most supply chain issues are expected to ease by the end of the year.

In fact, since the second quarter, companies' concerns about the rise in raw materials have been repeatedly mentioned in the financial reports. Bank of America statistics show that the number of "cost" mentions has increased 11 times compared with last year. Supply chain inflation has become the "target of public criticism", mainly because companies need to find sufficient labor and raw materials to meet the needs of rapid recovery from the epidemic.

The Yangtze River Business Daily reporter noted that fast food brand chipotle, Corona beer parent company constellation brands, tissue paper producer Kimberly and other companies have announced price increase decisions in the first half of the year.

In this regard, industry insiders analyzed: "Pepsi Cola is actually not a simple Coke producer, it is just a brand operator, many price pricing actually need to rely on a large number of supply chain enterprises to supply, but now the supply chain price increase has been difficult to be solved by the advantages of mechanized large-scale production, which is the core reason for the price increase of Pepsi. Secondly, for the current Pepsi, the price increase is also a process of following the trend. ”

In fact, in the face of rising raw material prices, in late April this year, Coca-Cola announced plans to raise prices, it is worth mentioning that this is the second time that Coca-Cola has announced price increases after three years. Zhu Danpeng, an analyst in the Chinese food industry, said: "If the two major Coke giants raise product prices, the Coke market will usher in new changes, and domestic beverages will also have new room for development." ”

Ranked first in the global food and beverage top 100

It is worth mentioning that in addition to the strong growth in revenue, PepsiCo has also recently topped the 2021 Global Food and Beverage 100 annual list released by the US industry media food engineering, successfully replacing Nestlé, which previously held the throne.

The Reporter of Changjiang Business Daily noted that the "upper position" of PepsiCo is inseparable from the aura of performance. The data shows that PepsiCo's organic revenue for the full year of 2020 increased by 4.3%, and overall sales increased from about $67.2 billion in 2019 to about $70.4 billion.

Behind the intuitive data, PepsiCo can maintain its growth in the epidemic this round, which is inseparable from its measures in channels, business layout and other aspects. From the channel side, in 2020, PepsiCo's net revenue in the e-commerce channel achieved more than 90% growth.

In addition, PepsiCo continues to maintain the pace of its own acquisitions. In June 2020, PepsiCo completed its acquisition of Thyme Flavor, which in the process also acquired rockstar energy beverages, a well-known North American energy drink producer. From the perspective of specific products, PepsiCo launched the functional water brand driftwell last year, adding magnesium and L-theanine to relax and sleep.

Secondly, PepsiCo's acquisition process was also accompanied by adjustments to the existing product structure. In August, PepsiCo sold juice assets such as Tropicana and Naked Juice to private equity firm Pai Partners for $3.3 billion.

It is understood that with the gradual improvement of public health awareness, consumers are abandoning sugary drinks, prompting the company to introduce this initiative. PepsiCo CEO Ramon Laguarta said the deal would give the company access to funding to develop other businesses like healthy snacks and zero-calorie drinks like rival Coca-Cola.

In addition, on September 16 this year, PepsiCo announced pep+ (Pep positive), which is a strategic transformation of the company's overall business to create long-term sustainable value. The plan will start from three aspects: supply chain, value chain and product end. This includes sourcing key crops and raw materials in a sustainable manner; using and promoting more sustainable packaging; and continuing to develop the food and beverage portfolio.

In implementing specific product layouts, PepsiCo said it would add more diverse ingredients to existing and new products, with priority given to chickpeas, plant protein and whole grain products.