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PepsiCo raises profit forecast as soda demand jumps, plans price increases

Published 07/13/2021, 06:06 AM
Updated 07/13/2021, 10:06 AM
© Reuters. FILE PHOTO: FILE PHOTO: Bottles of Pepsi are pictured at a grocery store in Pasadena, California, U.S., July 11, 2017.   REUTERS/Mario Anzuoni/File Photo

By Uday Sampath Kumar

(Reuters) -PepsiCo Inc will increase the prices of its products this year, the company said on Tuesday after it raised its full-year earnings forecast on surging demand for its sodas from pandemic-weary people flocking to restaurants and theaters.

A host of factors, including disruptions in global supply chains and rising demand, has pushed up raw-material prices, forcing packaged food companies such as PepsiCo and rival Coca-Cola (NYSE:KO) Co to pass on costs to consumers.

The inflationary trend was underscored by the latest set of data, which showed U.S. consumer prices rose by the most in 13 years in June.

PepsiCo's move to raise prices, likely after Labor Day, will also be used to offset higher advertising and marketing costs, which rose 30% in the quarter as the company looked to take advantage of a reopening U.S. economy, Chief Financial Officer Hugh Johnston told Reuters.

Net revenue from beverage sales to schools, restaurants, stadiums and other such businesses in North America doubled in the second quarter.

"Performance in the food service channels was very sudden after three quarters of negative growth," Johnston said.

"It opened up very rapidly and there was a lot of desire for people to get out as they got vaccinated."

Overall net revenue rose 20.5% to $19.22 billion in the quarter ended June 12, above expectations of $17.96 billion, according to Refinitiv IBES data.

Excluding items, PepsiCo earned $1.72 per share, above estimates of $1.53 per shares.

The company expects fiscal 2021 core earnings per share to increase 11%, compared with prior forecast of a high-single-digit increase.

PepsiCo said it would also expand an automation program to its manufacturing plants, warehouses and service centers, resulting in expected pre-tax charges of about $3.15 billion.

© Reuters. FILE PHOTO: FILE PHOTO: Bottles of Pepsi are pictured at a grocery store in Pasadena, California, U.S., July 11, 2017.   REUTERS/Mario Anzuoni/File Photo

Johnston said potential job losses due to automation will be more than offset by employment growth in other parts of the company.

Pepsico (NASDAQ:PEP) shares rose about 2.5% to hit a record high in early trading.

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