Pepsico

Grocery & Restaurants

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)