PepsiCo price hikes seem to be paying off.
Shares in the company rose as markets opened Tuesday morning after its third-quarter earnings revealed net sales of $23.45 billion, up 6.7 percent from the same period last year.
PepsiCo owns major household brands such as Gatorade, Doritos, Tropicana and Lay’s potato chips. The firm has previously been accused of ‘greedflation’ – the practice of raising prices well above the rate of inflation.
In the corporation’s third quarter, it increased prices worldwide by an average of 11 percent compared to the same quarter last year. It was the seventh consecutive quarter that the company’s price rose by a double-digit percentage.
A spokesperson for the company told DailyMail.com that these increases were also explained by shrinking portions and smaller packs.
PepsiCo owns major household brands such as Gatorade, Doritos, Tropicana and Lay’s potato chips. Pictured are bottles of Diet Pepsi Wild Cherry on display at a market in Pittsburgh
Shares in the company rose as markets opened Tuesday morning after its third-quarter earnings revealed net sales of $23.45 billion — a 6.7 percent increase
After the change, in the 12 weeks that ended Sept. 9, Pepsi’s North American beverage division had an 8 percent revenue increase, but unit volume declined only about 6 percent, according to the company’s filings Tuesday.
Frito-Lay, which oversees the company’s food businesses in the United States and Canada in North America, also experienced increased revenue and lower sales following changes to the company’s pricing model.
As such, the company raised its full-year forecast for stock growth from 12 to 13 percent — its third consecutive quarterly increase.
Africa, the Middle East and South Asia was the only market in which the company reported a drop in revenue, which it attributed to unfavorable foreign exchange rates, driven by the weakening of the Egyptian pound.
Moving forward, Pepsi’s prices will continue to rise, albeit more conservatively, its chief financial officer said. “Our prices will be more or less in line with inflation,” Pepsi CEO Hugh Johnston told investors.
But he also indicated that consumers are becoming increasingly strict with their spending amid higher gas prices and inflation more generally.
“I do think we’re seeing the consumer being more selective right now, you’re seeing it in a variety of ways,” Johnston said.
“Usually when gas prices are higher and consumer incomes are stressed, you also see incomes there being stressed,” he said. ‘We expect the consumer to continue to be cautious.’
PepsiCo CEO Ramon Laguerta (pictured) said the company was ready for the impact of weight-loss drugs, but so far their impact on sales had been ‘negligible’
Chief financial officer Hugh Johnston (pictured) said consumers were becoming ‘more selective’ amid higher gas prices and inflation more generally
An exception in terms of declining sales volume was the Pepsi-owned brand Gatorade, which continued to see increases in sales, albeit a smaller increase than in the previous quarter.
CEO Ramon Laguarta said competition from new energy drink Prime may be to blame, but that the brand is otherwise performing well.
“The rise of Prime has taken a share from Gatorade, but less than other brands in the category,” Laguarta said. But, he added, “We’re seeing the size of Prime in the category shrink as we get into the fall.”
Laguarta also addressed the threat posed by weight-loss drugs like Ozempic, which target appetite, and recent reports that their appearance has affected food and beverage sales.
He said that while they have “negligible impact” today, the company is ready for them in the coming years.
“We are watching the growth of these new drugs and their potential impact,” he said.
When Pepsi announced more price hikes in April, experts suggested they could actually worsen inflation.
“Inflation is going to stay much higher than it should be because companies are greedy,” Albert Edwards, global strategist at Société Générale told the New York Times.
“Companies are not just maintaining margins, not just passing on cost increases, they’ve been using it as a cover to expand margins,” he added.
But David Beckworth, a senior research fellow at George Mason University and a former economist for the Treasury Department, said he was skeptical that the rapid rate of price increases was “profit-driven.”
He said prices will not be able to rise if people are not willing or able to spend more.