PepsiCo

PepsiCo marveled at how much they were able to hike prices to boost their sales

PepsiCo’s CFO’s described their company as benefitting from a “combination of high pricing right now as well as relatively low elasticity.” “HUGH F. JOHNSTON, PepsiCo, Inc. – Vice Chairman, Executive VP & CFO: Yes. Dara, it’s Hugh. A couple of things. Number one, you know our long-term guidance on revenue is 4% to 6%. And as Ramon and I have talked about in the past, we’ve always been pushing ourselves to how do we get to the upper end of the range on that on a more consistent basis. Given the combination of high pricing right now as well as relatively low elasticity, it’s difficult to figure out exactly how that might project going forward. And that’s sort of a long-term comment. I’m not going to get into ’23 on today’s call, as is our practice. We’ll talk about that in February. But our aspiration remains the same, which is we want to go and push hard on top line. We think it’s great for the organization. We think it ultimately creates more value than any other strategy. But no change in terms of long-term guidance at this point. It’s just been — the times are just so interesting, it’s hard to figure out what that projects forward into.” (Q3 2022 PepsiCo Inc Earnings Call, 10/12/2022)

PepsiCo’s CEO on their 16% increase in sales: “With a lot of pricing we don’t think that’s a sustainable performance for the business.” “RAMON LUIS LAGUARTA, PepsiCo, Inc. – Chairman & CEO: So when you compare to the average of food, you should assume we’ll do better and hopefully will do better than our categories. Those are the variables that we look at every month as we assess our performance. And as Hugh was saying, our long-term 4% to 6%, I think remains valid. Clearly, a 16% quarter is an outstanding quarter. With a lot of pricing we don’t think that’s a sustainable performance for the business. But obviously, we’re aspiring to beat our long term as many quarters as possible.” (Q3 2022 PepsiCo Inc Earnings Call, 10/12/2022)

PepsiCo’s CFO: “Obviously, we try to price through inflation and we always set that out as a goal…our plan is to be able to do exactly that, gain share, ideally price through inflation.” “HUGH F. JOHNSTON, PepsiCo, Inc. – Vice Chairman, Executive VP & CFO: Right. And I’ll build on that, Bonnie. One of our goals clearly is to both gain share and to grow margins. And frankly, that’s something that I think we can do. I don’t view it as an either/or, I view it as an and. We ought to be able to do both. Obviously, we try to price through inflation and we always set that out as a goal. We were a little bit short of that in the quarter. Gross margins were down by about 20 basis points as I’m sure you’ve noted. But then we also focus on the balance of the cost structure, making sure that we’re as efficient as we can possibly be and try and to eliminate waste wherever we can find it. We were successful on that in the third quarter as well. So operating margins were up about 30 basis points. So our plan is to be able to do exactly that, gain share, ideally price through inflation. If we’re a little bit short of that, we’re going to continue to focus on driving the balance of the cost structure so that if the revenue growth does start to soften up a little bit, we’ll still be in a position to deliver superior financial results.” (Q3 2022 PepsiCo Inc Earnings Call, 10/12/2022)

PepsiCo’s CFO: “I still think we’re capable of taking whatever pricing we need.” “HUGH F. JOHNSTON, PepsiCo, Inc. – Vice Chairman, Executive VP & CFO: Regarding pricing, we increased prices at the beginning of the fourth quarter based on what we knew at that point. And going forward, with the investments that we’ve made in brands, I still think we’re capable of taking whatever pricing we need.” (Q3 2022 PepsiCo Inc Earnings Call, 10/12/2022)

PepsiCo’s CEO said their priority was “trying to create brands that can stand for higher value to consumers and consumers are willing to pay more for our brands.” “RAMON LUIS LAGUARTA, PepsiCo, Inc. – Chairman & CEO: I mean if you look at the majority of our conversation with our customers, center around growth and how do we develop our categories, continue to bring consumers into the category, continue to bring new occasions into the category, and that’s the role I think we play to our customers and to the — how we create value for the company long term. So we’ll continue with that focus, trying to create brands that can stand for higher value to consumers and consumers are willing to pay more for our brands. We’ll continue with that philosophy. And we’ll see where the cost environment goes in the coming years. Obviously, we’re — if anything, that these last 2 years have taught us is that we really want to become more agile and more nimble and more flexible, and that’s what we’re doing across the company.” (Q3 2022 PepsiCo Inc Earnings Call, 10/12/2022)

PepsiCo used those price hikes to pay for $7.7 billion in dividends and stock buybacks

PepsiCo announced it had funneled $7.7 billion in dividends and stock buybacks to investors so far this year. “And we continue to expect: A core annual effective tax rate of 20 percent; and Total cash returns to shareholders of approximately $7.7 billion comprised of both $6.2 billion in dividends and $1.5 billion in share repurchases.” (PepsiCo Third Quarter 2022 Prepared Management Remarks, 10/12/2022)

PepsiCo credited price hikes for driving sales in all of their North American divisions

PepsiCo’s Frito-Lay North America division saw revenue and profit increases of roughly 20% in the past quarter “primarily driven by effective net pricing.” “FLNA 12 Weeks: Net revenue grew 20%, primarily driven by effective net pricing. Unit volume declined 2%, primarily reflecting a double-digit decline in our Sabra joint venture products and a mid-single-digit decline in variety packs, partially offset by low-single-digit growth in trademark Doritos and Cheetos and double-digit growth in trademark Popcorners. Operating profit increased 17%, primarily reflecting the effective net pricing and productivity savings. These impacts were partially offset by certain operating cost increases, including strategic initiatives, and a 20-percentage-point impact of higher commodity costs, primarily cooking oil, potatoes and corn.” (PepsiCo, Form 10-Q, 10/11/2022)

PepsiCo’s Quaker Foods North America division saw revenue and profit increases of roughly 15% in the past quarter “primarily driven by effective net pricing.”“QFNA 12 Weeks: Net revenue grew 15%, primarily driven by effective net pricing, partially offset by a decrease in organic volume. Unit volume declined 4%, primarily reflecting a mid-single-digit decline in oatmeal, a double-digit decline in pancake syrups and mixes, a high-single-digit decline in bars and a mid-single-digit decline in rice/pasta sides, partially offset by double-digit grth in lite snacks. Operating profit grew 15%, primarily reflecting the effective net pricing and productivity savings. These impacts were partially offset by a 50 percentage-point impact of higher commodity costs, primarily grains and packaging materials, certain operating cost increases, including incremental transportation costs, the organic volume decline and higher advertising and marketing expenses.” (PepsiCo, Form 10-Q, 10/11/2022)

PepsiCo’s PepsiCo Beverages North America division attributed 4% revenue growth in the past quarter as “ primarily driven by effective net pricing.” “PBNA 12 Weeks: Net revenue increased 4%, primarily driven by effective net pricing and an increase in organic volume. The Juice Transaction reduced net revenue growth by 9 percentage points. Unit volume increased 1%, driven by a 4% increase in our non-carbonated beverage (N CB) volume, partially offset by a 2% decrease in carbonated soft drink (CSD) volume. The NCB volume increase primarily reflected a double-digit increase in Gatorade sports drinks and a high-single-digit increase in our juice and juice drinks portfolio (adjusted for the impact of the Juice Transaction), partially offset by a double-digit decrease in our energy portfolio and a low-single-digit decrease in our overall water portfolio.” (PepsiCo, Form 10-Q, 10/11/2022)

Pepsi announced it would raise prices after raising earnings expectations, claiming “our products are worth paying more for”

Pepsi’s CEO suggested that consumers “might be paying less attention to price” because they may be “more emotionally attached” to Pepsi’s brand.  Pepsi CEO Ramon Laguarta said during the latest earnings call that consumers seem to be looking at pricing a little bit differently than before. “Consumers are shopping faster in-store, and they might be paying less attention to pricing as a decision factor, and they might be giving more relevance to the brands or brands that they feel…closer to…more emotionally attached to, as our brand.” (Fortune, 11/15/2021)

In July 2021, PepsiCo announced it would raise prices at the same time it raised its full year earnings forecast in response to “surging demand.” “PepsiCo Inc (PEP.O) will increase the prices of its products this year, the company said on Tuesday after it raised its full-year earnings forecast on surging demand for its sodas from pandemic-weary people flocking to restaurants and theaters. A host of factors, including disruptions in global supply chains and rising demand, has pushed up raw-material prices, forcing packaged food companies such as PepsiCo and rival Coca-Cola Co (KO.N) to pass on costs to consumers.” (Reuters, 7/13/2021)

PepsiCo said the price increase was being used to offset “higher advertising and marketing costs.” “PepsiCo’s move to raise prices, likely after Labor Day, will also be used to offset higher advertising and marketing costs, which rose 30% in the quarter as the company looked to take advantage of a reopening U.S. economy, Chief Financial Officer Hugh Johnston told Reuters. Net revenue from beverage sales to schools, restaurants, stadiums and other such businesses in North America doubled in the second quarter. ‘Performance in the food service channels was very sudden after three quarters of negative growth,’ Johnston said. ‘It opened up very rapidly and there was a lot of desire for people to get out as they got vaccinated.’” (Reuters, 7/13/2021)

A PepsiCo executive told Yahoo Finance that “we do think our products are worth paying more for, and we think consumers will.”  “‘The way we think about pricing is really a reflection of the investments we make in our brands and the innovation that we have because those are the things consumers are willing to pay more for. We think of it as connected to delivering value to consumers. Obviously with cost pressures it puts that much more pressure on pricing,’PepsiCo vice chairman and CFO Hugh Johnston said on Yahoo Finance Live. ‘In fact, we will be taking pricing post Labor Day. It varies by business as to how much it will be in Quaker vs. Frito Lay vs. the beverage business. What I would point out in the second quarter our pricing was up about 5% in the North America businesses. I think you will see us take good, strong price increases which are really reflective of the fact that even through the pandemic we kept investing in the business, building the brands and building capacity to fulfill sales,’ Johnston added, ‘So we do think our products are worth paying more for, and we think consumers will.’” (Yahoo Finance, 7/13/2021) 

After raising prices, PepsiCo increased their stock buybacks and dividends, continuing a pattern of funneling pandemic profits back to investors 

In February 2022, PepsiCo announced it would increase their dividend and authorized $10 billion in stock buybacks.  “For 2022, we expect to deliver 6 percent organic revenue growth, which is at the high-end of our long-term target range and implies a strong acceleration in our organic revenue growth on a two-year basis. Additionally, we expect to deliver 8 percent core constant currency earnings per share growth, which reflects the impact of inflationary pressures across our value chain and planned investments in our business. We also announced a 7 percent increase in our annualized dividend, starting with our June 2022 payment which represents our 50th consecutive annual increase, and our Board has authorized the repurchase of up to $10 billion of PepsiCo common stock through February 2026.” (PepsiCo, 2/10/2022)

In February 2021, PepsiCo reported it planned to spend $5.8 billion on dividends and $100 million on stock buybacks in 2021. “On February 11, 2021, we announced a 5% increase in our annualized dividend to $4.30 per share from $4.09 per share, effective with the dividend expected to be paid in June 2021. We expect to return a total of approximately $5.9 billion to shareholders in 2021, comprised of dividends of approximately $5.8 billion and share repurchases of approximately $100 million. We have recently completed our share repurchase activity and do not expect to repurchase any additional shares for the balance of 2021.” (PepsiCo, 2020 Annual Report)

In April 2020, PepsiCo reported that it planned to spend $7.5 billion on stock buybacks and dividends for 2020. PepsiCo said core earnings for the three months ending in March were pegged at $1.07 per share, up 10.3% from the same period last year and 4 cents ahead of the Street consensus forecast. Group revenues, PepsiCo said, rose 7.8% to $13.88 billion, again topping analysts’ estimates of a $13.2 billion tally. PepsiCo said it will scrap its 2020 earnings guidance, which had called for 4% organic revenue growth and 7% core earnings growth, but noted that it will continue to buy back shares and pay a cash dividend, with the collective returns amounting to around $7.5 billion this year.” (The Street, 4/28/2020)

In 2019, PepsiCo reported spending $8.3 billion on stock buybacks and dividends. “In 2020, net cash provided by financing activities was $3.8 billion, primarily reflecting proceeds from issuances of long-term debt of $13.8 billion, partially offset by the return of operating cash flow to our shareholders through dividend payments and share repurchases of $7.5 billion, payments of long-term debt borrowings of $1.8 billion and debt redemptions of $1.1 billion. In 2019, net cash used for financing activities was $8.5 billion, primarily reflecting the return of operating cash flow to our shareholders through dividend payments and share repurchases of $8.3 billion, payments of long-term debt borrowings of $4.0 billion and debt redemptions of $1.0 billion, partially offset by proceeds from issuances of long-term debt of $4.6 billion.” (PepsiCo, 2020 Annual Report)

PepsiCo’s CEO saw his compensation increase significantly during the pandemic

For 2020, the total compensation of PepsiCo’s CEO increased to $21.4 million compared to a median employee of $46,546, a ratio of 462 to 1. “The following ratio of Mr. Laguarta’s annual total compensation to the median employee’s for our last completed fiscal year is a reasonable estimate calculated in a manner consistent with applicable SEC rules.  The median employee’s total compensation was $46,546. The total compensation was calculated in the same manner in which we determine the compensation shown for our NEOs in the Summary Compensation Table, including the value of retirement benefits. As reported in the Summary Compensation Table on page 68, our CEO’s compensation was $21,486,982. Based on this information, the ratio of Mr. Laguarta’s annual total compensation to the median employee compensation for 2020 was estimated to be 462 to 1.” (PepsiCo 2021 Proxy Statement, 3/24/2021)

For 2019, PepsiCo reported the total compensation of its CEO to be $16.9 million compared to $45,896 for its median employee, a ratio of 368 to 1. “The following ratio of Mr. Laguarta’s annual total compensation to the median employee’s for our last completed fiscal year is a reasonable estimate calculated in a manner consistent with applicable SEC rules. • The median employee’s total compensation was $45,896. • The total compensation was calculated in the same manner in which we determine the compensation shown for our NEOs in the Summary Compensation Table, including the value of retirement benefits. …• As reported in the Summary Compensation Table on page 61, our CEO’s compensation was $16,870,817. Based on this information, the ratio of Mr. Laguarta’s annual total compensation to the median employee compensation for 2019 was estimated to be 368 to 1.” (PepsiCo 2020 Proxy Statement, 3/20/2020)

Pepsi previously used a price increase in 2019 to beat profit expectations

In October 2019, PepsiCo announced it exceeded Wall Street profit expectations following price increases on its drinks and snacks. “PepsiCo Inc. is getting a boost from higher prices on its drinks and snacks, a sign U.S. consumers still feel good amid recent indicators of a looming economic slowdown. The snack and beverage giant said Thursday it will meet or exceed its full-year revenue growth after sales and profit both topped Wall Street estimates for last quarter. The results showed that once again consumers were willing to pay more for its products, sending the shares up as much as 3.5%, the biggest intraday gain in more than five months. ‘The consumer right now in the U.S., at least in terms of our business, is doing really well,’ Hugh Johnston, the company’s chief financial officer, said in an interview.” (Bloomberg, 10/13/2019)