"When it comes to pricing, as we said earlier in February, we have mostly taken the pricing already this year that we needed to cover for our cost increases, and that's where we stand at this point. We're seeing a deceleration of inflation, not a reduction of cost, but a deceleration of inflation, and we think that with the pricing that we've taken already most of our business around the world, that should be sufficient," Laguarta said.
PepsiCo enacted a series of price increases last year, including an average increase of 10% in the first quarter of 2022, 12% in the second quarter, and 7% in the fourth quarter.
First quarter 2023 by the numbers
In the first quarter of 2023, ending March 25, 2023, PepsiCo's net revenues grew 10.2% from the same period last year to reach $17.846bn, though operating profit for the quarter shrank to $2.629bn compared to $5.267bn last year. PepsiCo also raised its full-year guidance, projecting that 2023 organic revenue will increase by 8% (previously, 6%) and core constant currency EPS by 9% (previously, 8%).
When asked about the decision to raise full-year guidance this early in the year by Kevin Grundy of Jefferies, Laguarta explained that PepsiCo is seeing “better elasticity” from its worst-case scenarios, and productivity has improved across its supply chain.
“We're seeing, in general, the flow of materials, the availability of labor, transportation, all those elements that were making us a sub-optimal company ... that's getting better, which is given us the opportunity to improve some of the metrics in our operations faster than what we thought. So it's both an improvement in productivity on the cost side and better elasticity.”
Private label comes for salty snacks, but Frito-Lay grows market share
Across its North American divisions, PepsiCo saw double-digit organic revenue growth, with Frito-Lay seeing higher-than-average growth, despite consumers trading down to private labels in the snack category.
PepsiCo's Frito-Lay North America division delivered 16% organic revenue growth in the first quarter led by double-digit net revenue growth in Lay's, Doritos, Cheetos, and Ruffles, and high-single-digit growth in Tostitos. Better-for-you brands like PopCorners, Smartfood, and SunChips delivered double-digit net revenue growth for the quarter.
As consumers look to stretch their dollars due to inflation, some consumers have begun to trade down from national brands to private label brands. The company has seen this in the snack, water, and juice category, but Frito-Lay has remained strong in the face of it, Laguarta explained.
“Frito-Lay is ... growing share of market at the fastest pace that we've seen in the last maybe 10 years, if I recall, as a consequence of the great work the team is doing in terms of execution but mostly innovation and brand building. So, I think we see both private label increasing, although from a very low base in salty snacks, but most importantly for us we've seen our brands continue to gain loyalty expand the consumer base and be referred in that segment."
Pepsi Zero Sugar reformulation off to a good start
PepsiCo is also seeing double-digit growth in its beverage division as it continues to invest in zero-sugar offerings at the center of its portfolio transformation.
Overall, PepsiCo Beverage North America saw 12% organic revenue growth in the first quarter, led by double-digit growth in Aquafina, Gatorade, LIFEWTR, and Rockstar, while bubly, Mountain Dew, and Starbucks saw mid-single-digit net revenue growth.
When asked about the early reception of the Pepsi Zero Sugar reformulation from Vivien Azer of Cowen Group, Laguarta said, “it’s been very well received by consumers based on our early data of repeats and preferences." Pepsi Zero Sugar has grown 60% in the first quarter, "driven a little bit by distribution but it's mostly velocity," he added.
“We also see the growth of the non-sugar segment in the category, two/three times the average of the category,” Laguarta said. “And we are driving that growth along with some of our key competitors ... It's a strategy that is working and is keeping the category very relevant for consumers. We will continue to invest in non-sugar as a driver of growth for our brands.”