about 2 months ago • 2 mins
What’s going on here?
PepsiCo reported tidy third-quarter earnings on Tuesday, showing at least one thing’s organic about its business.
What does this mean?
Inflation might have whole countries down in the dumps, but it’s not going to get PepsiCo. The drinks and snacks giant pulled up prices to even out higher costs, confident that loyal shoppers wouldn’t dare switch to a supermarket alternative or, worse, a certain famous competitor. And the move paid off: organic sales – excluding brands that were bought or sold – bulked up by 9% last quarter from the same time last year. Full of reassurance, the beverage aficionado nudged its profit growth outlook up to 13%. That was just the ticket after a year of so-so performance: investors gave the stock a pop upward after the news.
Why should I care?
For markets: Defense can be the best offense.
Investors usually turn to defensive firms – ones that can bag sales no matter what’s going on elsewhere – when the economy’s in a tough spot. PepsiCo’s included in that category, because no measly downturn is going to turn folk off their favorite fizzy drinks and salty snacks. Still, before the recent update, PepsiCo’s stock was down 9% this year, lagging behind the S&P 500 index. The future is only looking foggier, though, so this recent change of mood may signal that investors are starting to flock to the safety of carbonated chemicals.
Zooming in: Loyalty is everything.
PepsiCo’s strategy worked, sure, but mainly because its most loyal customers were willing to pay more for their favorite products. But actually, fewer of the brand’s items were picked off the shelves last quarter than the same time last year. That’s not an immediate worry for PepsiCo, but investors will be looking further ahead. If the company prices out even its biggest fans, or if sales stagnate when inflation cools down, the firm could end up looking flat.
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