PepsiCo reported third quarter results which beat on the top and bottom lines, despite supply chain disruptions and inflationary pressures. PepsiCo also raised its full-year forecast based on continued strong performance in North America.
Net sales rose 11.6% to $20.2 billion, beating expectations of $19.39 billion. The company’s organic revenue, which strips out the impact of acquisitions and divestitures, climbed 9% in the quarter. Adjusted earnings per share were recorded at $1.79 vs an expected $1.73. Organic revenue growth for the year is now expected to come in at 8%, up from the previously estimated 6%.
Pepsi’s North American beverage business reported organic revenue growth of 7% for the quarter with organic sales increasing by 10% on a two-year basis. The company said that it saw double-digit net revenue growth for its food service business, which includes sales to restaurants, stadiums, and college campuses. Worldwide, the company’s away-from-home drink business is down just 10% from 2019 levels.
Frito-Lay, the company’s snack business, saw its organic revenue increase by 5%, as consumers maintained many of their pandemic snacking habits. Pepsi said that it gained market share in the salty and savoury snack categories during the quarter. Frito-Lay now accounts for 38% of the total global potato chip market making it 10x the size of its nearest competitor, with more than half of the US and almost two thirds of Latin American salty snacks being consumed belonging to Frito-Lay.
PepsiCo trades on a PE multiple of 25x and dividend yield of 2.7% which is slightly above the company’s long-term average. PepsiCo has raised its dividend for the last 49 years, with the average increase in payment just below 10%. Although we are uncertain whether the company will continue to raise dividends at near double-digit rates, we do remain confident that high single digit rates of dividend growth should be achieved. Add this growth to the current dividend yield, coupled with the outstanding assets such as Frito-Lays, and we expect PepsiCo to deliver sound returns for shareholders over the next several years as it has done for decades. The current fiscal year should deliver another impressive performance, with organic revenue expected to increase approximately 8% and adjusted earnings per share to increase at least 11%. PepsiCo is held in both the Cratos BCI Worldwide Flexible Fund as well as Cratos Global Managed Portfolios.