PepsiCo reported better-than-expected sales in the fourth quarter after hiking prices for its drinks and snacks, but it warned that consumers may be less willing to accept those increases as this year progresses.
Revenue rose more than 10% to $28 billion. That was better than the $26.8 billion Wall Street had forecast, according to analysts polled by FactSet.
Pepsi raised prices 16% in the October-December period __ and 14% overall in 2022 __ as it battled double-digit percentage cost increases for ingredients like cooking oil, potatoes and seasonings. The price increases boosted results; Frito-Lay snacks and Quaker products booked double-digit revenue gains in North America even though sales volumes were down 1% and 3%, respectively.
In Europe, where Pepsi hiked prices by 20%, the company said costs for packaging materials, cooking oil and other commodities surged 141 percentage points. Revenue and sales volumes both fell in that market. Revenue and sales volumes rose elsewhere, including Asia and Latin America.
Pepsi says consumers have been resilient so far in the face of higher prices, and continue to gravitate toward familiar brands like Doritos and Cheetos. Newer drinks, like the recently reformulated Pepsi Zero Sugar, are also pulling in customers. Pepsi Zero Sugar sales volumes jumped 26% in the fourth quarter, Pepsi Vice Chairman and Chief Financial Officer Hugh Johnston said Thursday in a conference call with investors.
But Johnston said the company wouldn't be surprised to see a mild recession in the U.S. and other developed markets in the second half of this year.
“Right now the consumer is still quite good," he said. “But we also have to plan for multiple scenarios.”
Pepsi’s net income fell 60% to $535 million, largely due to a $1.5 billion impairment charge for its SodaStream brand and other assets.
Pepsi said SodaStream, a $130 machine that lets users make their own carbonated drinks, is a discretionary purchase that has struggled in the current economic climate, particularly in Europe. Pepsi Chairman and CEO Ramon Laguarta said the company reassessed the value of the brand in the fourth quarter, but continues to think SodaStream has great potential.
Without one-time items, Pepsi earned $1.67 per share in the October-December period, beating analysts’ forecast of $1.65.
The Purchase, New York, company expects to deliver organic revenue growth of 6% this year, a slower pace from its full-year organic growth of 14.4% in 2022. It also plans $1 billion in share repurchases.
The company said it expects full-year adjusted earnings of $7.20 per share, up 6% from 2022. That came in lower than Wall Street's forecast of $7.27 per share, according to FactSet.
Pepsi also said it would buy back about $1 billion worth of its own shares and raised its annual dividend by 10%.
Pepsi shares rose nearly 2% in morning trading.