PepsiCo Reported Strong Results During Inflation

It’s not just food retailers benefiting from rising prices. Another member of the “whisper it, inflation isn’t all bad” club is PepsiCo Inc.

Effects: On Wednesday, the maker of Mountain Dew, Quaker Oats, and Frito-Lay snacks upgraded its full-year forecast of organic sales growth to 12% from 10%. Unlike many of the consumer goods groups reporting their second-quarter earnings back in the summer, PepsiCo, first out of the blocks this time around, was able to raise its earnings per share growth, excluding currency movements, to 10% from 8%, even as it faced higher costs for commodities such as sugar, corn, and potatoes.

The company’s outlook underlines how the most powerful brands can persuade customers to pay more for their products. Although the volume of convenience food sold fell slightly, this didn’t offset the positive impact of pricing.

PepsiCo may augur a strong performance from other consumer giants, such as Nestle SA, which begin reporting next week. It’ll be worth watching how European groups have been affected by rising energy costs. But demand for drinks, snacks, and ice cream as travel resumed and Europe basked in unusually warm weather is likely to have bolstered third-quarter results. 

Whether companies can continue passing on inflation: Consumers are feeling the pinch and increasingly turning to cheaper brands. It is notable that PepsiCo’s biggest fall in volume was in Europe. Supermarkets’ own private-label brands are the most developed on the continent, and the hard discounters Aldi and Lidl have a strong foothold.

While US consumers may benefit from falling gasoline prices, European shoppers are hurt by rising household energy bills. PepsiCo said it was “diligently monitoring” spending patterns and behaviors. Meanwhile, financial solid performances from the consumer giants may prompt the grocers to fight back against the price hikes that are falling on them. We’ve already had a spat between Britain’s biggest retailer Tesco Plc and Kraft Heinz Co. Investors should brace for more skirmishes.


What is in it for you: While retailers such as Nike Inc. and Levi Strauss & Co. have cut forecasts amid sluggish supply chains, a strong dollar, and cautious consumers, food demand is holding steady and shoppers are still paying up. 


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