Pepsi's first quarter organic revenue grew by 14.3% to reach $17.8bn, reflecting strong growth across Europe and the Americas. Total food volumes fell by 3% while beverage volumes increased by 1%.
Underlying operating profit rose 19% to $2.8bn, as revenue growth outpaced inflated costs. The underlying figures ignore the impact of a $3.3bn gain on the sale of several juice brands in the prior year.
The free cash outflow worsened from $693m to $954m, as Pepsi paid suppliers faster this year. Net debt increased by $2.8bn to $36.6bn.
Full-year organic revenue is now expected to grow by 8%, up from previous group expectations of 6%.
The shares were up 1.7% in pre-market trading.
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Our view
Pepsi's impressive sales performance, especially in the beverages channel, has caused the top line to shoot up by double digits at a time when consumers are really feeling the pinch.
Despite inflationary headwinds pushing up costs, improved sales and other cost management measures have helped keep underlying operating profit growing at a faster pace. That's a seriously impressive achievement in this challenging environment.
Even with rising costs set to persist throughout the year, Pepsi expects to deliver strong organic revenue and profit growth - even upgrading its full year expectations after this year's strong start. With a proven track record of delivering, we wouldn't bet against them. We think its ability to thrive can be credited to a laser-like focus on brand quality
The longer-term picture looks good too, thanks to the diversity of Pepsi's top-quality brands - 23 of which generate $1bn or more of sales a year. But unlike rival Coca-Cola, it doesn't limit itself to soft drinks. Pepsi's products include snack brands such as Walkers crisps and Doritos, and some more unexpected names - Quaker Oats with your fizzy drink?
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 licensing 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.
Net debt remains high, coming in at around $37bn. Although it's not too much of a concern at the moment, it's higher than we'd like to see and it's certainly something we'll be keeping our eye on with interest rates remaining at high levels.
Overall, we consider Pepsi's variety of brands and history of strong execution a real bonus. But we're also wary that food volumes fell slightly. We're curious to see if Pepsi keeps pushing through price hikes at the same pace as the year progresses.
With Pepsi currently trading above its long-term average on a price-to-earnings basis, there are certainly heavy expectations on its shoulders to keep delivering on its recently upgraded targets. Depending on how hard an economic downturn bites in its core markets, those targets could start to become more challenging.
Pepsi key facts
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.
This article is original Hargreaves Lansdown content, published by Hargreaves Lansdown. It was correct as at the date of publication, and our views may have changed since then. Unless otherwise stated estimates, including prospective yields, are a consensus of analyst forecasts provided by Refinitiv. These estimates are not a reliable indicator of future performance. Yields are variable and not guaranteed. Investments rise and fall in value so investors could make a loss.
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