PepsiCo CFO on battling inflation: Expect price hikes of up to 10%
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PepsiCo isn't shying away from trying to protect its profit margins this year from surging inflation by increasing prices.
"With levels of inflation and commodities as high as they are right now, we clearly are going to have to take some pricing. We have been investing heavily in our brands and heavily in product innovation. 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. You will see pricing up a bit," explained PepsiCo Vice Chairman and CFO Hugh Johnston on Yahoo Finance Live.
The impact of higher costs for things such as transportation and raw materials weighed on the food and beverage giant's fourth quarter.
While organic sales rose 11.9% on the back of strong demand for zero sugar beverages, Gatorade and Frito Lay snacks core earnings only rose 4% from a year ago. Organic sales rose in all segments for PepsiCo, paced by a 17% gain in Latin America.
Core operating profits, however, dropped in four of seven segments owing to those aforementioned inflationary pressure.
Added Johnston on how much prices may be increased this year, "Based on what we see right now, it's going to be high-single digits to 10%."
Here is how PepsiCo performed compared to Wall Street analyst estimates:
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Net Sales: $25.25 billion vs. $24.22 billion
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Organic Sales Growth: +11.9% vs. +8.04%
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Diluted EPS: $1.53 vs. $1.52
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2022 Core EPS Guidance: $6.67 vs. $6.73
Shares of PepsiCo fell 2.2% in Thursday's session.
Paying more for soda and chips this year shouldn't exactly come as a shock to shoppers.
The Consumer Price Index (CPI) registered a 7.5% annual gain in January, the BLS said Thursday. Consensus economists were looking for a 7.3% rise. This represented the fastest rise since 1982, as well as an acceleration from the 7.0% year-over-year increase seen in December.
"Over the coming months, we are preparing for more headline-grabbing inflation data points (like today’s) that could send the media and some traders into a tailspin and make the Fed’s job increasingly difficult, particularly as the Fed is still infusing the system with QE through the middle part of March," said BlackRock CIO of global fixed income Rick Rieder.
Brian Sozzi is an editor-at-large and anchor at Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn.
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