Rising costs and inflation pressures have softened PepsiCo’s full-year guidance for 2022 below analysts’ predictions, even as the company beat revenue expectations in its Q4 2021 earnings report, released this morning.
Similar to chief rival Coca-Cola, PepsiCo reported an increase in net revenue and strong demand for its food and beverage products, yet the specter of climbing expenses related to supply chain bottlenecks and transportation and labor cast something of a pall on the overall outlook.
“Our full year net revenue growth meaningfully accelerated in 2021 versus the previous year and this gives us added confidence that the investments we’ve made in our people, brands, innovation, supply chain, go-to-market systems and digitization initiatives are working,” said Chairman and CEO Ramon Laguarta in a press release.
“Moving forward, we remain committed to building advantaged capabilities that can help us win in the marketplace and become an even faster, even stronger and even better organization. Importantly, this includes putting sustainability and human capital at the center of everything we do with the recent implementation of PepsiCo Positive (pep+), a fundamental end-to-end transformation of what we do and how we do it to create growth and shared value.”
Though strong demand has managed to smooth over price hikes thus far, speaking on Thursday to Yahoo Financial News after the report’s release, PepsiCo vice chairman and CFO Hugh Johnston was frank in his assessment that further increases may be needed to push back against inflation and input costs, saying “we clearly are going to have to take some pricing.”
“Because the world is in a bit of a stressful place, the simple pleasures of our products I think people are generally finding worth paying a few pennies more for,” he said. “You will see pricing up a bit.”
Here’s some of the top-line highlights:
- Net revenue increased 12.4% during Q4 2021 and 12.9% for the full-year. Organic revenue growth was 11.9% in Q4, with volume (+5%) and pricing mix (+7%) both on the rise. Strong growth in organic revenue from global beverages (+11%) and convenient foods (+13%) was also a factor. Organic revenue growth accelerated 12% in North America and 11% internationally.
- Net sales were up 12% ($25 billion)
- Organic revenue growth for 2022 is projected to be 6%, which “implies a strong acceleration in our organic revenue growth on a two-year basis.”
- Looking ahead, Laguarta said inflated expenses related to commodity, transportation, and labor cost inflation are expected to persist.
PepsiCo Beverages North America (PBNA) saw a 12% increase in organic revenue growth in Q4 and 10% growth for the full year. In the release, Pepsi credited double-digit net revenue increases from trademarks Pepsi, Mountain Dew, Gatorade, Starbucks, LIFEWTR, bubly and Aquafina. Within the mix, zero-sugar products from Pepsi, Mountain Dew, Gatorade and bubly delivered an aggregate $2 billion in retail sales last year. Meanwhile, the company’s evolving energy drink portfolio — which includes new products from Starbucks, Mountain Dew and Rockstar — delivered over $1 billion in estimated retail sales.
PBNA’s core operating profit increased 21% for the full year but fell 9% in Q4, which the company attributed to “high-single digit increase in advertising and marketing spend and planned investments in our business, as well as supply chain bottlenecks and escalating inflationary pressures related to commodity, transportation, and labor costs.”
Outside of beverages, Pepsi enjoyed strong performances from Frito Lay and Quaker Oats. The former reported 13% increase in organic revenue growth for Q4 and 7% for the full-year, with market share gained in both salty and savory snack categories. The company credited “capability and capacity investments across the value chain,” along with full-year revenue growth from trademarks Ruffles, Doritos, Lay’s, Tostitos and Cheetos. On the better-for-you side of things, Bare, PopCorners and Smartfood delivered double-digit net revenue growth in Q4. Meanwhile, Quaker Oats saw its organic revenue growth accelerate in Q4, growing 9%. The business has delivered a 10% organic revenue growth over a two-year basis.
In response to a question on energy drinks, Laguarta said the company is “pleased with what we are seeing” as the portfolio segments across brands Rockstar, Starbucks and Mountain Dew. With regards to the latter brand, he praised the team’s ability to quickly rebrand its energy drink RISE after facing a trademark lawsuit. Elsewhere, Laguarta noted that the just-released Starbucks Baya Energy line will add incremental growth to the category. Meanwhile, while acknowledging a “complex transformation” for Rockstar that includes new packaging and positioning, the brand is making inroads outside of the U.S. and is expected to go from 23 markets to 70 markets by the end of 2022. Laguarta also noted that Pepsi is “not thinking” about M&A opportunities in energy at the moment.
With regards to alcoholic beverages, the CEO was more open minded. Like Coke has with Molson Coors and Constellation Brands, PepsiCo has partnered with an experienced beer operator — The Boston Beer Company — to enter the beverage alcohol market with Hard MTN DEW, a flavor malt beverage (FMB) set to launch sometime this year.
Noting the segment’s large size and profitability, he said Pepsi would “like to participate in a consistent and structural way for us,” mainly via licensing brands to beer manufacturers. However, he also hinted that in the future the company could leverage its Blue Cloud Distribution infrastructure, and assets “to provide capital distribution and consistent execution across the country” for alcoholic beverages from third-party brands. He noted that the company is “working on that solution” with “some market tests” in progress, but didn’t offer further details.