PepsiCo Expects Stable Sales Growth with Price Increase

Stock Price Rises About 4% This Month

[Asia Economy Reporter Minji Lee] PepsiCo is expected to show an upward trend in its stock price based on stable sales growth.

According to the financial investment industry on the 9th, PepsiCo's stock price rose 3.7% from 150.41 to 156.03 this month. This is interpreted as reflecting expectations of stable future sales growth due to price increases following the announcement of second-quarter results that exceeded market expectations.

PepsiCo reported third-quarter sales of $21.09 billion and operating profit of $3.24 billion, up 12% and 30% respectively compared to the same period last year. EPS grew 8% year-over-year to $1.79. Sales exceeded market expectations by 4.2%, marking the 16th consecutive quarter of surpassing estimates, and EPS beat estimates by 3.5%, continuing an 11-quarter streak of surprises.

By segment, sales growth rates were 2% for North American foods, 5-8% for North American beverages and snacks, 9% for Europe, and 27-33% for other emerging markets. While sales growth in the food segment slowed as the U.S. economy reopened, beverage sales increased due to the resumption of sports activities, and successful brand marketing led to high sales growth in emerging markets such as India, Pakistan, and the Middle East.

Researcher Taewan Oh of Korea Investment & Securities said, “Operating profit margin slightly declined to 16.1% due to some supply disruptions and increased transportation costs caused by COVID-19, but supply disruptions are expected to ease from the fourth quarter,” adding, “The company forecasts annual sales growth of 8% and EPS growth of 12% compared to a year ago in its annual guidance.”

PepsiCo’s strong brands such as Pepsi-Cola, Gatorade, Cheetos, and Doritos also positively impact its ability to pass on rising production costs to consumers. In this quarter, 5% of the 9% organic sales growth was due to price increases. The company expects production costs to continue rising through 2022 and plans to implement proactive price increases.

Additionally, the company is preparing for new dietary trends. It is continuously acquiring companies that manufacture healthy beverages and snacks while divesting sugar-based juice brands. Researcher Oh explained, “Early next year, the company plans to pilot various sugar-free beverages and plant-based snacks and will continue to increase related new investments.”

Researcher Oh added, “Next year’s price-to-earnings ratio (PER) is expected to be 22.5 times, lower than the recent three-year average of 25.2 times,” and said, “Regardless of COVID-19, strong performance continues, inflation hedging is possible through price increases, and the company flexibly responds to long-term food trend changes, making it a recommended defensive stock.”