PepsiCo raised its earnings forecast for the full year, as people returning to restaurants and cinemas boosted sales of the company’s sodas.
The pandemic had dragged on demand for 7Up, Mountain Dew and other beverages as coronavirus restrictions kept crowds away from bars, stadiums and other venues.
Vaccinations against Covid-19 and the relaxation of curbs helped PepsiCo’s sales grow faster than anticipated in the second quarter. Organic sales of beverages in North America were up 21 per cent compared with the same period last year, when the hospitality sector was hit by shutdowns and capacity limits.
Sales at food service venues, in particular, surged relative to last year, and large retailers and convenience stores generated strong growth.
Hugh Johnston, chief financial officer, said the rebound in away-from-home consumption in the US was “quite sudden” as Americans began eating out and going to entertainment venues again with restrictions lifted.
“Mobility substantially increased,” Johnston said in an interview with the Financial Times. The food service channel was about one-fifth of PepsiCo’s business, but it “clearly is a tailwind that will continue to escalate” over the coming quarters, he added.
The results showed resilient demand for salty snacks, with Frito-Lay’s organic sales in North America rising 6 per cent. Chip sales have been a bright spot over the past year with consumers stocking up on Doritos and Cheetos as they spend more time at home.
Quaker Foods recorded a 14 per cent drop in sales, weighed down by comparisons with 2020 when demand for breakfast items surged. However, Quaker’s organic revenue was up 9 per cent from two years ago.
Consumers’ new breakfast habits will probably keep sales of pancake mix and oatmeal elevated compared with pre-pandemic levels. “The way offices are heading into the future, there’s going to be more working from home,” Johnston said.
Sales overall climbed in Latin America, Europe and other international markets, overcoming uneven economic recoveries across the globe because of Covid-19 measures.
PepsiCo expects 2021 adjusted earnings per share to increase 11 per cent on a constant currency basis versus the prior year. The company previously forecast earnings growth in the high-single digits. It expects that organic sales will climb 6 per cent, compared with earlier guidance for a rise in the mid-single digits.
PepsiCo said on Tuesday net revenue in the June quarter jumped 20.5 per cent year on year to $19.2bn, easily beating analysts’ forecast of $17.96bn. Sales also climbed above levels reported before the pandemic. Two years earlier, PepsiCo reported second-quarter sales of $16.5bn.
Net income attributed to the company hit $2.36bn, up from $1.65bn a year ago. PepsiCo earned $1.72 per share on an adjusted basis, topping the consensus estimate of $1.53.
Inflation, which Johnston said was probably at the higher end of the company’s expectations, contributed to a decline in gross margin during the quarter.
“Is there somewhat more inflation out there? There is. Are we going to be pricing to deal with it? We certainly are,” he added on a call with analysts.
Shares in PepsiCo, which had been up less than 1 per cent on the year, gained about 2 per cent on Tuesday.