Earnings Call: Pepsico Outlines 2024 Strategy Amid Inflation Concerns and Changing Consumer Habits

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Earnings Call: Pepsico Outlines 2024 Strategy Amid Inflation Concerns and Changing Consumer Habits
Credit: © Reuters.

PepsiCo (NASDAQ: PEP )'s Chairman and CEO, Ramon Laguarta, and CFO, Hugh Johnston, discussed the company's strategies and outlook for 2024 during their 2023 Third Quarter Earnings Question-and-Answer Session. Amidst global inflation concerns, the executives highlighted volume and margin optimization strategies, changing consumer trends, and the company's continued focus on cost reduction and productivity. PepsiCo, known for its track record of meeting or beating consensus for 55 consecutive quarters, provided its 2024 guidance earlier than usual, citing increased visibility into commodity inflation.

According to InvestingPro data, PepsiCo has a market cap of $225.46B USD and has seen a revenue growth of 10.11% in the last twelve months ending in Q2 2023. The company's gross profit for the same period stood at $48.39B USD, demonstrating a healthy profit margin of 53.69%.

Key takeaways from the call include:

  • PepsiCo is experiencing sequential volume improvement globally, with units growing faster than volume. This is attributed to consumers shifting to smaller packs, a trend the company is supporting through pricing and mix strategies.
  • In its PepsiCo Beverages North America (PBNA) business, the company has been aggressive in pruning unprofitable promotions, leading to a 2.5% volume impact. In Latin America, product portion sizes are being reduced to maintain affordability for consumers with limited disposable income.
  • The company expects higher inflation in 2024, leading to a higher price mix compared to previous years. Johnston stated that inflation will be slightly elevated compared to pre-pandemic levels, with pricing expected to be roughly in line with inflation.
  • Despite expecting consumers to continue being cautious, PepsiCo's revenue outlook accommodates this, and its long-term structural tailwinds and market share are expected to remain strong. The company's return on assets, according to InvestingPro data, was 8.44% for LTM2023.Q2.
  • The executives also emphasized the company's focus on automation, digitalization, and precision in decision-making. They mentioned their commercial relationship with Instacart (NASDAQ: CART ), enhancing their direct store delivery (DSD) system.
  • PepsiCo is confident in the positive trends driving consumer choices, such as urbanization, middle class development, and changing snacking habits. They are adapting their portfolio by reducing sodium, fat, and sugar, and introducing new cooking methods to their snacks.

According to InvestingPro Tips, PepsiCo is a prominent player in the Beverages industry and has maintained dividend payments for 53 consecutive years, a testament to its financial stability and commitment to shareholders.

  • The company also discussed its energy drink strategy and the importance of CELSIUS in their distribution system, noting its growth and positive impact on their overall portfolio.

In the face of inflation and changing consumer habits, PepsiCo (NASDAQ:PEP) is focusing on optimizing its volume and margins, driving productivity, and reducing costs. The company's early guidance for 2024 reflects a cautious yet confident approach, backed by strong commercial plans in developed markets and a track record of consistently meeting or exceeding consensus. For more insights like these, consider checking out the additional 13 tips available on the InvestingPro platform.

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