Despite a “volatile supply chain and cost environment,” PepsiCo reported double-digit growth in its Q3 earnings report today, with net revenue in the quarter up 11.6%.
According to the company, organic revenue was up 9% in the third quarter. Earnings per share (EPS) was $1.60, down 3%, while core EPS was $1.79 (up 5.5%). Year-to-date, the company reported net revenue up 13.2% and organic revenue up 8.4%. In a release, PepsiCo CEO Ramon Laguarta said the company now anticipates full-year organic revenue to increase about 8%.
“Our strong year-to-date results demonstrate that the investments we have made towards becoming a faster, stronger, and better company are working,” Laguarta said in prepared remarks. “We are extremely pleased with the progress we are making on our strategic agenda, and remain committed to the investments in our people, supply chain, plants, go-to-market systems, and digitization initiatives to build competitive advantages and win in the marketplace.”
PepsiCo Beverages North America revenue was up 7% in Q3, while Frito-Lay North America revenues rose 6% and Quaker Foods North America was up 2%. Latin America revenues increased 27%; Africa, Middle East and South Asia rose 33%; Asia Pacific, Australia and New Zealand and China jumped 27%; and Europe grew 9%.
Operating profit was PepsiCo Beverages North America increased 11%, while Frito-Lay was flat and Quaker Foods operating profits fell 27%. Around the world, operating profits were up double digits everywhere except Europe, where they declined 8%.
In prepared remarks, the company noted that the MTN Dew brand has driven market share in the carbonated soft drink space, while PepsiCo also gained share in the RTD tea and water categories. The LIFEWTR, Bubly and Aquafina brands all posted double-digit net revenue growth in the quarter, while Pepsi saw high single-digit growth and Starbucks drinks were up mid-single-digits.
The company said it will continue to invest in its Zero Sugar product portfolio, which includes Pepsi, MTN Dew and Gatorade brands, and is also working to improve its performance in the energy category through products like MTN Dew Rise and the repositioning and relaunch of Rockstar.
Speaking to investors and analysts during a call this morning, Laguarta said the company has “been investing a lot in R&D” and believes its “pipeline is strong.”
“I would say our pipeline in 2021 was very strong,” he said. “We’re seeing the return from that innovation across the world. We’re trying to be much more local, much more mid-term and long-term, much more incremental in the way we think about our innovation.”
In August, PepsiCo announced it would launch an alcoholic Hard MTN Dew flavored malt beverage (FMB) line, made in collaboration with Boston Beer Company. The new products, which have a 5% ABV and are available in original, Black Cherry and Watermelon flavors are set to launch next year. During the call’s Q&A session, Laguarta said PepsiCo opted to create its own integrated distribution system for the line in order to centralize operations and “make coordinated decisions across multiple states from one decision point.”
“We’re starting with a number of states where we have the license to operate, and we will take it from there,” Laguarta said. “We think the same as we’re doing with the chilled distribution system, that is … unique and it covers the whole country, we think we could eventually envision a distribution system that can be … integrated on the low alcohol part of our portfolio as well.”
Laguarta added that the company believes MTN Dew will provide “a differentiated flavor with a very unique brand” into what is a “relatively crowded market” for malt beverages, stating that it is “clearly a space where we should be playing.”
Laguarta also commented on the company’s decision to divest its juice business in August, selling the Tropicana and Naked Juice brands to private equity firm PAI Partners in a $3.3 billion deal that gives the firm majority control of a new joint venture housing the brands, while Pepsi maintains a 39% stake.
“The juice business is a good business, but it’s probably not a business that we think we can grow at the speed and with the margins that we want to grow PepsiCo overall,” Laguarta said. “And that’s why we decided to make this decision. We found a great partner in PAI, they have very good experience with previous similar partnerships with other large food companies.”
As supply chain disruptions continue to impact international business, Laguarta noted that constraints did force PepsiCo to voluntarily pull on its inventory in some markets over the summer, but said that the business “has got its supply chain well-managed and on good footing.” However, with inflation rapidly pushing up the cost of goods, transportation and labor, the company is preparing to raise the prices of its beverages and snacks in the coming weeks with another price hike slated for next year.