over 2 years ago • 3 mins
PepsiCo reported better-than-expected earnings on Tuesday, as the US food and drinks giant starts to cater to slightly more… expensive tastes.
What does this mean?
Supply shortages have been pushing up costs for companies across the board, but Pepsi’s in a stronger position than most: it sells products that customers tend to buy no matter what, which means it can bump up prices without sacrificing sales. And that’s exactly what happened last quarter: Pepsi’s profit fell 3% compared to the same time last year, sure, but its organic revenue – that is, excluding the effects of acquisitions and currency swings – grew 9%. Emboldened, the company said it’s planning to raise prices even more in an effort to close that profit gap, and raised its revenue outlook for the rest of the year too.
Why should I care?
For markets: Green is the new brown.
Pepsi’s stock is only up 4% this year versus the US stock market’s 16%, but the company has a plan to fix that: it’s been trying to endear itself to an increasingly eco-conscious customer and investor base. That became clear last month, when it said it’d be releasing a new range of healthy snacks and drinks in collaboration with Beyond Meat by 2022. It then doubled down on those new sustainable stylings, announcing that it would be committing to a new program – “Pep+” – that includes a raft of ambitious sustainability targets.
Zooming out: Beer’s lost its taste.
It’s not just Pepsi that’s looking to change with the times: AB InBev – the world’s biggest brewer – said on Monday that it’s thinking of selling off some of the German beer brands it’s owned for decades. It apparently wants to focus more on wines and spirits, which stands to reason: more than 60% of growth in the alcohol industry is being driven by products other than beer.
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Chinese property developer Fantasia Holdings missed a $206 million debt payment early this week, and this party looks like it’s only just getting started.
What does this mean?
Evergrande might have been the main talking point of the last few weeks, but China’s crackdown on a debt-laden real estate sector was always going to have further-reaching consequences. Case in point: Chinese rating agencies have been downgrading property companies’ bonds left, right, and center, suggesting they don’t think the firms in question are likely to make good on their debts.
They aren’t wrong: Fantasia – which was downgraded just last week – wasn’t able to settle its latest payment on Monday. The company quickly had to leap into damage control mode: it halted the trading of its shares on Tuesday to prevent their price from falling even further than the 20% it’s dropped in the last month.
Why should I care?
For markets: There’s still hope for Evergrande.
Evergrande, meanwhile, has desperately been trying to sell off parts of its business in an effort to keep up with its payments on over $300 billion of debt. And there might be hope yet, with rival real estate company Hopson Development rumored to be interested in buying a majority stake in Evergrande’s property services segment. That could give Evergrande enough cash to get back on its feet, and not a moment too soon: its share price has fallen 80% this year.
The bigger picture: The US is in the deep end too.
Chinese property developers aren’t the only ones staring down the barrel of bankruptcy: the US is close to hitting the limit on national debt it can rack up, and its government now has to agree to raise that “debt ceiling”. If it can’t get the votes it needs to do just that by October 18th, the US won’t be able to pay the interest on its debt – which would be disastrous for the world’s financial markets.
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