Defying some expectations for an inflation-induced slowdown, PepsiCo raised its revenue forecast for the year for a second time, citing the “resilience” of consumer spending. But in Tuesday’s quarterly report, PepsiCo left its earnings forecast unchanged, suggesting shoppers could cut spending as prices continue to rise at an uncomfortably high pace.
The company, which makes Pepsi, Mountain Dew and Doritos, has not raised its earnings outlook in line with its revenue forecast due to uncertainties about “consumer elasticity,” said Hugh F. Johnston, the company’s chief financial officer, during a meeting with investors. † In other words, shoppers may end up buying less if prices continue to rise. The company now expects revenue to grow 10 percent this year, up from an 8 percent forecast last quarter, and profits to rise 8 percent, the same as previously expected.
Notably, PepsiCo’s second-quarter revenue and earnings, both of which exceeded analyst expectations, grew faster than sales volumes, implying that the company could charge more for every can of soda and bag of chips.
Can he keep that up for the rest of the year? “We still have six months to go,” said Mr Johnston, and there are “a lot of unknowns in terms of what’s going to happen to consumer behavior.”
PepsiCo is one of the first major companies to report earnings for the second quarter of the year, and the tone it is setting is cautious optimism. Analysts and investors are watching whistleblowers like PepsiCo for signals about the state of consumer spending and the risk of a recession, as the economy appears increasingly fragile.
Shares of PepsiCo ended lower on Tuesday. Since the beginning of the year, it has handily beaten the market, with the company’s stock falling about 2 percent, compared to the S&P 500, which has fallen about 20 percent in that time.
PepsiCo’s report shows that consumers are still able to absorb some price increases, which are not declining. Beyond that, however, the company appears more cautious about how potential consumer spending cuts and its own rising costs could hurt profit margins. Forecasts for the coming quarters will be scrutinized in other earnings reports to come out in the coming weeks, as market observers try to get a sense of how the economy could develop over the rest of the year.
“As inflation continues to climb,” PepsiCo CEO Ramon L. Laguarta said on the call, “we will have to be super flexible and very precise in the choices we make with consumers.”
