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PepsiCo Delivers Solid Quarter and Raises Year End Targets

By Parkev Tatevosian, CFA – Oct 7, 2021 at 9:06AM

Key Points

  • Consumer mobility was the primary contributor to the better-than-expected results.
  • The company reported revenue of $20.2 billion when Wall Street was expecting $19.3 billion in Q3.
  • Still, supply chain challenges could cause PepsiCo to stumble.

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PepsiCo reported higher-than-expected revenue in Q3 and raised 2021 guidance for earnings per share and revenue.

PepsiCo (PEP 0.30%) delivered another solid quarter in what is shaping up to be another solid year for the international snack and beverage giant.

At the pandemic onset, the company boosted sales as people consumed more of its products while stuck at home. The fact that it's increasing sales from the elevated levels of 2020 is impressive, no doubt.

This third-quarter performance, reported on Tuesday, even surprised PepsiCo management. As a result, management raised revenue and earnings per share guidance for the remainder of the year. 

A group of people clinking their glasses of soda.

Image source: Getty Images.

Consumer mobility is boosting sales for PepsiCo

PepsiCo's revenue increased by 11.6% from the same quarter last year to $20.2 billion in its fiscal third quarter. Analysts on Wall Street were expecting it to report revenue of $19.3 billion. However, earnings per share came in at $1.60, below analyst estimates of $1.73. PepsiCo stock is up about 2.5% since reporting the results on Oct. 5.

Management attributed the rise in sales to gains in market share in several categories, including salty snacks and carbonated beverages. In addition to the increase in the volume of consumption of its products, PepsiCo also benefited from higher prices.

The higher prices came in two forms. One was from company-implemented price increases. The other was from the mix of locations where people were buying its products -- purchases at restaurants and convenience stores come with higher prices than grocery stores. One of the benefits of reopening economies worldwide is that folks leave their homes more often, eat at restaurants, and fill up gas more frequently, leading to more purchases in those locations. Price margins on the products is higher in those locations.

The trend is likely to continue, hopefully, as more of the world gets vaccinated against COVID-19. The vaccines are proving to be effective against the worst effects of the disease, and that's giving governments the confidence to reopen more parts of their economies. 

PepsiCo will need to manage supply chain bottlenecks

The most prevalent challenge now for PepsiCo is managing through supply chain shortages and rising prices for materials, freight, and labor. The bottlenecks were felt most strongly in its FritoLay segment in Q3. Management noted that the segment's operating profits were negatively affected by a temporary disruption at a manufacturing plant, ongoing supply chain pressures, and increased commodities, labor, and transportation costs.

These issues are unlikely to abate anytime soon. While, thankfully, the trend of infection caused by COVID-19 is heading downward in most parts of the world, the spread of the virus is still high. That means on-the-job risks for some workers have substantially increased. It's no surprise then that they are asking for higher wages to perform their work in such an environment. 

Despite those headwinds, management is optimistic for the final quarter of fiscal 2021 and raised its yearly targets for revenue and earnings per share. Organic revenue growth for the year is now expected to come in at 8%, up from the previously estimated 6%. Earnings per share are now expected to be at least 11%; previously management guided to 11%.

Parkev Tatevosian has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

Stocks Mentioned

PepsiCo Stock Quote
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$182.18 (0.30%) $0.55

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