Daily Brief: Looks Like You Still Want Pepsi, At Least For Now…

Daily Brief: Looks Like You Still Want Pepsi, At Least For Now…

over 1 year ago3 mins

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PepsiCo reported better-than-expected quarterly results on Tuesday.

What does this mean?

No matter how high prices get, you’re still going to be willing to pay for your Quaker porridge, your Aquafina water, and your tangy cheese Doritos to see you through the day. So even though Pepsi’s products were 12% more expensive last quarter than the same time in 2021, shoppers still picked up 3% more snacks and 6% more drinks. That pushed up the drinks maker’s organic revenue – which strips out the effects of acquisitions and currency swings – by 13%. And even though Pepsi’s profit tanked by $1.2 billion on the back of the war, it still came in above expectations. The company’s optimistic things will keep going strong too: it upped its yearly organic revenue growth outlook from 8% to 10%.

PepsiCo earnings
Source: PepsiCo

Why should I care?

The bigger picture: Shrinkflation in action.

This is the second quarter in a row that Pepsi has upped its 2022 revenue forecast, but it’s not done the same for profit. That’s probably because the prices Pepsi pays its US suppliers are rising even faster than the prices it’s charging its customers – something that’s likely to hit Pepsi’s profit margins even more going forward. And while it could keep hiking prices, it’s probably aware that there’s only so far it can push things before cash-strapped customers tap out. That might be why it’s planning to save money in other ways – by, say, reducing product sizes.

PepsiCo stock
Source: Google Finance

Zooming out: Pepsi’s green ambitions are lip service.

The world’s three biggest soda companies – Pepsi, Coca-Cola, and Keurig Dr Pepper – release more heat-trapping gases than the country of Belgium, which is partly down to the production of their plastic bottles. That’s encouraged the industry to invest around $8 million in an initiative to reduce plastic use and increase recycling. But experts say it isn’t going nearly far enough: the three biggest players earn that sort of cash in three hours flat.

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UK Retail Sales Fell Again Last Month

UK retail sales image

Data out on Tuesday showed that UK retail sales fell again last month.

What does this mean?

The Queen’s 70th Jubilee wasn’t going to celebrate itself: street parties needed hosting, bunting needed hanging, and flip-flops needed wearing. But while the festivities did give food and fashion sales a lift at the start of June, they weren’t enough to offset an overall slowdown in spending across the country. That comes as shoppers are continuing to cut back on nice-to-haves like electrical appliances and homeware, while downgrading their must-haves to own-name brands or cheaper alternatives. All in all, UK retail sales fell 1% last month from the same time last year – a third-straight monthly fall, with sales now slipping at a pace not seen since the bleakest phase of the pandemic.

UK retail sales
Source: BRC/KPMG

Why should I care?

The bigger picture: The crisis is spreading.

It’s not hard to guess why shoppers are tightening their belts, and data from Barclaycard – which monitors almost half the UK’s card transactions – proves just how ridiculous prices are getting. Spending on basic utilities was 40% higher in June than the same time last year, while spending on car fuel was up around 25%. That might be why the abrdn Financial Fairness Trust and University of Bristol just estimated that nearly 40% of UK households are either in "serious financial difficulties" or "struggling to get by”.

Cost of living crisis

Zooming out: Let’s call the whole thing off.

Economists think the UK will manage to evade a recession this quarter, but the likelihood it’ll happen sooner or later is climbing. In fact, a Bloomberg survey has shown that analysts on aggregate now think there’s a 45% chance of a downturn in the next year – three times higher than at the start of the year.

Consumer gloom
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