PepsiCo raised its year-end guidance following strong Q1 earnings results this morning that bested analyst expectations.
“Our results are indicative of the strength and resilience of our diversified portfolio, modernized supply chain, strong digital capabilities, flexible go-to-market distribution systems, and highly experienced set of global business leaders who have the local expertise and execution capabilities to make rapid, decentralized decisions to meet the needs of their local consumers,” PepsiCo chairman and CEO Ramon Laguarta said in a statement.
The company raised its year-end guidance, projecting full year 2023 organic revenue to grow 8% (previously 6%) and core constant currency EPS to improve 9% (up from 8%).
Net revenue in Q1 grew 10.2% to $17.8 billion, while organic revenue growth was up a robust 14.3%. Broken down by division, Frito-Lay North America organic revenue growth was up 16%, PepsiCo Beverages North America (PBNA) grew 12% (despite a volume decline of -2%) and Quaker Foods North America improved 10% (volume fell -5%).
Within PBNA, Laguarta noted the trademark Pepsi brand grew net revenue by double-digits in Q1, while Gatorade, Rockstar, Aquafina and LIFEWTR each improved by high-single-digits and MTN Dew, Bubly and Starbucks were up by mid-single-digits.
Looking ahead, Laguarta said the company will emphasize innovation to drive profitable growth, highlighting recent product launches such as the reformulated Pepsi Zero Sugar line, MTN Dew Pitch Black Zero Sugar and lemon lime soda brand Starry, which replaces Sierra Mist and is targeted towards Gen Z shoppers. As well, Q1 saw the launch of new Rockstar flavors, new Starbucks RTD flavors, and Gatorade-branded tablets, powders, pods and gummies.
Speaking with investors and analysts on an earnings call today, Laguarta noted that Pepsi Zero Sugar is “essential” to the company’s strategy this year and early consumer data has shown a positive response to the reformulation. He said the brand grew around 60% in the first quarter, which was “driven a little by distribution, but it’s mostly velocity.”
PepsiCo is also continuing its extension into the beverage alcohol sector through the expansion of its Hard MTN Dew line – produced in partnership with Boston Beer Company – to 12 states with plans to add additional states later this year, as well as the launch of Lipton hard iced teas.
“Our intention is not to build a large portfolio of products and complex portfolio, but is to focus on a few good brands developed with strategic partners and then leverage our distribution capabilities to give it to consumers all across the country,” Laguarta said, commenting on the alcohol portfolio. “That’s our journey. We’re not rushing. We’re going at a speed that we learn and we make this business solid with the right margins and the right consumer propositions.”
Internationally, the organic revenue improved across all markets including Latin America (+16%), Europe (+14%), Africa, Middle East and South Asia (+29%) and Asia Pacific, Australia and New Zealand and China (+4%).
On the call, Laguarta said the majority of inflation-fueled price increases have already occurred and rising costs are expected to be covered for the remainder of the year as inflation decelerates.
He added that economic elasticities have been better “than some of the worst-case scenarios we were planning for” and that globally PepsiCo has seen better-than-expected productivity and labor availability while supply and transportation disruptions have improved.
“We think that with the pricing that we’ve taken already [in] most of our business around the world, that should be sufficient,” he said. “Obviously, there are some markets, highly inflationary markets around the world, where we might have to take additional pricing. If you think about Argentina, Turkey, Egypt – those kind of markets where the currencies are suffering – but the majority of our pricing is already done.”