PepsiCo, Inc. (NYSE:PEP) beat both our estimate and the Consensus Estimate for earnings and sales in the fourth quarter of 2022. Every year, both the top and bottom lines got better.

The company was able to keep its competitive edge by investing in its brands, marketing strategies, supply chains, manufacturing skills, and digital know-how. Its success was also helped by the fact that the beverage and ready-to-eat food businesses are strong and stable around the world. The business thought that 2023 would be a good year.

After the earnings report came out on February 9, Pepsico stock went up 1.63% before the market opened. This was because the results were good and things looked good in the future. In the past year, the industry as a whole grew by 3.3%, but PepsiCo stock only went up by 1.9%.

Quarter Key Results

The average estimate for PepsiCo’s fourth-quarter core earnings per share (EPS) was $1.64, while we thought it would be $1.61. From one year to the next, core earnings per share went up by 9.2%. When compared to the same time last year, core earnings were 10% higher when measured in the same currency. This happened because of efforts to manage income and cut costs, which helped to ease inflationary pressures. The reported EPS for the quarter was 37 cents, which was 61.1% less than the same time last year. This had to be done because some brands and assets had to be written down. Exchange rates made earnings per share go down by 1% for the quarter.

Net sales of $27,996 million were higher than our estimate of $26,347.5 million and the consensus forecast of $26,849 million, which were both up 10.9% from the previous year. Strong price/mix led to a rise in revenue from one quarter to the next. The number of units sold in the ready-to-eat food industry went down by 2% from the previous year, but the number of units sold in the beverage industry stayed the same. The 3% change in sales was due to the exchange of currencies.

From one year to the next, sales grew by 15% on their own. This was put down to growth in all fields and categories. For the sixth straight quarter, the company’s own sales went up by more than 10%. In the fourth quarter, organic volume dropped by 2% while effective net pricing went up by 16%. Prices went up because prices were good overall.

Because the global beverage and ready-to-eat food businesses grew quickly, improvements were made in every area. This shows how strong the business’s varied portfolio is. While sales of ready-to-eat foods went up by 18% year over year, sales of organic beverages went up by 10%. Organic sales went up by 14% in North America and by 16% in other parts of the world.

As a whole, the reported gross profit went up 11.1% from the previous year to $14,576 million. Core gross profit went up 11.5% year over year to reach $14,705 million. Overall gross margin went up by 11 basis points, but core gross margin went up by 27 basis points (bps).

The operational income was $815 million, which was 68.2% less than the same time last year. The company’s core operating income went up by 8% in the same currency and by 7% from one year to the next, reaching $2,930 million. The declared operating margin was 10.1% in the same quarter last year, but it is only 2.9% this year. Core operating margin went down by 39 basis points as advertising and marketing costs went up by more than 10% and the company worked harder to improve its digital capabilities and make purpose a part of everything it does (bps).

Details by Segment

Europe was the only part of the business that didn’t bring in more money. All of the segments’ organic sales went up.

According to reports, sales went up by 25% in FLNA, 16% in QFNA, 6% in PBNA, 21% in Latin America, 4% in AMESA, and 2% in APAC. But sales in Europe fell by 2% in the fourth quarter. Organic sales went up in FLNA, QFNA, and PBNA by 10%, in Latin America by 19%, in Europe by 12%, in AMESA by 21%, and in APAC by 12%.

The numbers show that the operating profit for FLNA went up by 9%, for PBNA by 13%, and for Latin America by 5%. But it went down by 420% in Europe, 148% in AMESA, and 215% in APAC. In QFNA, it only went down by 3%.

Financials

At the end of 2022, the company’s shareholders’ equity was $17,149 million, its long-term debt was $35,657 million, and it had $4,954 million in cash and cash equivalents (without non-controlling interest).

As of December 31, 2022, there was a net cash flow from operations of $10,811 million. This was a drop from the $11,616 million on December 25, 2021.

Outlook

PepsiCo gave specific predictions for sales and profits until 2023. In 2023, the company thinks sales will go up by 6%. It thinks that its core profits per share will go up by 8% compared to the same time last year.

PepsiCo thinks that currency headwinds will cause sales and core profits per share to drop by 2 percentage points in 2023. The current exchange rates are used to make this guess. The company thinks that its overall tax rate will be 20% in 2023.

Based on the above assumptions, PepsiCo thinks that its core profits per share will be $7.20 in 2023. This means that the core EPS of $6.79 in 2022 will go up by 6%.

PepsiCo still plans to give back to its shareholders by buying back shares and giving dividends. The company raised its annualized dividend by 10%. It will start to be paid out in June 2023. For the 51st year in a row, PepsiCo will raise its dividend. In 2023, the company also plans to buy back shares worth $1 billion.

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