PepsiCo aims to build on surging Q2 net sales of 20.5% with better-for-you beverages, snacks
At the same time, consumers who continue to stick close to home also are rewarding the beverage and snack giant for better-for-you innovations, including reduced sugar beverages and expanded snack packs offerings, executives told analysts July 13 during the firm’s quarterly call.
Considering the success of the last quarter and with optimism that recent innovations and new marketing strategies will help it meet evolving consumer demands going forward, PepsiCo raised its outlook for the full-year to reach 11% growth in constant currency earnings per share, up from a previous forecast of high-single digit growth. This surpasses analysts expected full-year earnings growth of 7.2%.
The revised predictions also take into account rising costs that are impacting businesses across the industry, including for raw ingredients, some inputs, labor and freight.
“We feel quite comfortable and confident that through a combination of net revenue management initiatives, and increased productivity, we can navigate this,” Ramon Laguarta, chairman and CEO, told analysts. He added PepsiCo is working with retailers to “make the right decisions on pricing,” which likely will go into effect after Labor Day.
Increasing consumer mobility opens opportunities
Much of PepsiCo’s growth in the quarter came from its North American beverage business, which saw organic revenue growth accelerate to 21% thanks partly to the revival of foodservice and the c-store and gas channels, which were hit hard during the pandemic when lockdowns kept people at home.
“From a channel perspective, the large format and convenience and gas channels delivered double-digit net revenue growth, while net revenue for our foodservice business doubled in the quarter as we lapped a significant decline from the previous year due to pandemic-related restrictions and closures,” Laguarta and chairman and CFO Hugh Johnston said in a joint statement ahead of the analyst call.
While optimistic about the foodservice channel growth, Johnston told analysts that he doesn’t view the rebound as “extraordinary,” but rather “as we’re getting back to sort of a more normal world.”
With that in mind, he called out gains in energy and innovations across the beverage business as potentially stronger long-term growth drivers for the company.
“We also remain optimistic about our ability to increase our presence and improve our performance in the highly profitable and growing energy category with our recent introduction of Mtn Dew Rise Energy, our continuous innovation and activity around Starbucks ready-to-drink coffee products and our investments behind the repositioning and relaunch of the Rockstar portfolio,” Laguarta and Johnston said in the joint statement.
Laguarta added during the analyst call that Mtn Dew Rise is generating “very good initial trial from consumers and very good repeats. If you follow on social networks, you know the comments are extremely positive about the taste, about the efficacy of the product.”
He also noted the brand has captured 1% of energy on percent share, but is “aspiring for much more, but it’s only been on the market for three months.”
As for Rockstar, Laguarta said PepsiCo is working on laying a strong foundation for the brand and it views the brand’s renovation as a multi-year effort.
Across the beverage business, Laguarta said he is optimistic about the creation of low- and no-sugar options that speak to rising consumer interest in ‘holistic health.’
“In general, we see consumers being more concerned about what we call holistic health – so mental health, physical health. Consumers are exercising more … consumers are moving into healthier spaces, clearly no-sugar is growing very fast, and I think we’re well positioned from the R&D point of view and the innovation point of view on non-sugar,” he said.
In prepared comments, Laguarta and Johnston highlighted that PepsiCo Europe recently pledged to reduce the average level of added sugar across its entire soft drinks portfolio by 25% by 2025 and 50% by 2030 versus 2019 levels.
Snack segment grows 6%
PepsiCo’s snack segment also saw organic revenue climb 6% -- a notable accomplishment given lapping of substantial impacts related to restrictions and closures during the early part of the pandemic in 2020, the executives noted.
As in beverage, this growth was driven by more choices to meet changing consumer preferences, including expanding variety packs, which continue to deliver strong net revenue growth, flavor and brand innovation such as Doritos 3D Crunch, Cheetos Crunch Pop Mix and a “strong lineup of Flamin’ Hot varieties,” the executives noted in prepared comments.
Healthier snacking alternatives, including Baked and lightly salted options, also helped drive growth, they added.
Quaker sales tumble from pandemic highs
While increased mobility boosted snack and beverage sales, it negatively impacted Quaker Foods North America, which saw organic revenue decline 14% during the quarter as it lapped a significant surge in business during the pandemic one year ago.
When viewed through a two-year lens that softens the impact of the pandemic, Laguarta and Johnston noted that Quaker’s organic revenue increased 9% and “reflects the ongoing investment in our brands, capacity and supply chain.”
The brand also is well positioned to meet consumer interest in holistic health, which Laguarta sees as a long-term trend.