Net revenue of $20.2bn was up 9% on an organic basis in the third quarter. That reflects growth in every business area, while operating profit was up 5% to $3.2bn.
Chairman and CEO, Ramon Laguarta acknowledged a "volatile supply chain and cost environment" but the group still upgraded full year guidance. It now expects full year organic sales to rise 8%, up from previous guidance of 6%.
The shares rose 1.2% following the announcement.
As the owner of the world's second largest cola brand, at first glance Pepsi looks like Coca-Cola writ small. But Pepsi's annual sales are around twice that of its more famous rival.
The group has navigated Covid disruption, and more recently - supply, cost and distribution headwinds - remarkably well. That's helped by Pepsi's diverse mix of top quality brands - 23 of which generate $1bn or more of sales a year. But unlike Coca-Cola, it doesn't limit itself to soft drinks. PepsiCo's products include snack brands such as Walkers crisps and Doritos, and some more unexpected names - Quaker Oats with your fizzy drink?
A laser-like focus on brand quality and margins, have kept profits slowly moving forwards. Hopefully that will see Pepsi build on 49 consecutive years of dividend growth this year. Remember no dividend's guaranteed and this should not be seen as a guide to the future.
It's also worth considering Pepsi's business model, which varies considerably by region. It'll manufacture products in some markets, in others it hands over almost complete control to a licencing partner - such as Britvic in the UK. On the one hand that makes Pepsi more capital intensive thanks to investments in factories and production equipment, increasing risk, but it's also allowed manufacturing processes to benefit from scale.
Debt has crept up, although it's not too much of a concern at the moment. A pending $3.3bn cash injection from the sale of the juice business will help alleviate some pressure - although proceeds could also be put towards acquisitions for growth, or even returned to shareholders.
Overall, we consider Pepsi's variety of brands and history of strong execution a real bonus. However, with the stock on a PE ratio above its long run average, only time will tell if the less focused, but perhaps more appealing business model can deliver the necessary results.
Pepsi key facts
- Price/Earnings ratio: 22.8
- 10 year average Price/Earnings ratio: 20.0
- Prospective dividend yield (next 12 months): 3.0%
All ratios are sourced from Refinitiv. Please remember yields are variable and not a reliable indicator of future income. Keep in mind key figures shouldn't be looked at on their own - it's important to understand the big picture.
Third Quarter Results (all profits are core, revenue growth is organic)
Revenue at Frito-Lay North America rose 5% to $4.7bn, with growth largely driven by price rather than volume increases. There was double-digit unit volume growth in variety packs and high-single-digit growth in trademark Ruffles, partially offset by a low-single-digit decline in Lay's. Operating profit was flat at $1.4bn despite the higher net revenue, because of higher packaging and cooking oil costs.
Quaker Foods North America saw revenue rise 1% to $618m. Operating profit fell 27% to $106m, again reflecting higher commodity costs as well as increased transport costs.
Operating profits at PepsiCo Beverages North America rose 4% to $773m, driven by a decrease in charges because of the pandemic. Revenue rose ahead of profits, rising 7% to $6.4bn.
Revenue in Latin America and Europe rose 19% and 8% respectively, reaching $2.1bn and $3.6bn. Both benefitted from increased snack sales, although Latin America fared better on the profit front, rising 47% while Europe was down 7%.
Operating profits in Africa, Middle East and South Asia & Asia Pacific, Australia and New Zealand and China Region rose 52% and 16% respectively, to $312m and $201m. Both regions achieved double digit unit revenue growth.
Net debt stood at $34.4bn, compared to $34.6bn at the end of 2020.
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