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Both Coca-Cola And PepsiCo Caution Hit To Profits Because Of Inflation


11/02/2022


Both Coca-Cola And PepsiCo Caution Hit To Profits Because Of Inflation
Coca-Cola and PepsiCo, the largest cola-making companies of the world, have cautioned that a steady rise in expenses will put pressure on their profits this year, despite both the companies exceeding sales estimates due to healthy demand and price hikes.
 
Aluminum cans, labor, and shipping costs have all risen in the previous year as a result of pandemic-induced global supply-chain disruptions, forcing firms all across the packaged food industry to respond by increasing the prices of their products.
 
However, with costs continuing to rise and supply constraints showing no signs of abating, economists warn that price increases will likely be insufficient to adequately cushion the industry's profit margins.
 
According to Hugh Johnston, PepsiCo's finance chief, the company could boost prices more later in the year if costs rise faster than projected, and he did not rule out certain supply shortages.
 
"We control our supply chain basically all the way to the shelf. That puts us in a relatively better position, but I wouldn't say we're not going to have challenges. We're not immune to that," Johnston said.
 
A similar sentiment was echoed by PepsiCo's arch-rival from Atlanta.
 
"Is it likely to be perfect this year? No, but we are doing the maximum we can to optimize our full availability," Coca-Cola Chief Executive Officer James Quincey said on an analyst call.
 
The adjusted operating margin of Coca-Cola declined to 22.1 per cent in the fourth quarter, down from 27.3 per cent in the same period the previous year. The adjusted operating margin for PepsiCo dropped by 183 basis points for the same period.
 
PepsiCo forecast its fiscal 2022 core earnings at $6.67 per share, which is lower than analysts' projections of $6.73, according to Refinitiv IBES data.  
 
Coca-Cola expects its adjusted earnings per share for the entire year of 2022 to improve 5 per cent to 6 per cent from $2.32 in 2021, compared to a 6 per cent increase predicted by analysts.
 
Nonetheless, analysts were generally pleased with the findings.
 
"The current impact on margins doesn't change our long-term outlook for Coke and Pepsi simply because eventually, inflation should subside and the changes that both these companies have made internally should begin to shine through," Edward Jones analyst John Boylan said.
 
PepsiCo's net revenue increased by 12.4 per cent to $25.25 billion in the fourth quarter, while the adjusted revenue of Coca-Cola increased by 10.1 per cent to $9.47 billion.
 
(Source:www.theglobeandmail.com)