Pepsi forecasts lower profit on costs tied to plant closures

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NEW YORK (Feb 15): PepsiCo Inc warned earnings will decline this year as it invests more to boost its businesses, the day after a disappointing outlook from chief rival Coca-Cola Co.

Adjusted earnings per share and revenue met analysts’ estimates in the fourth quarter. For this year, Pepsi forecast a 1% decline in core EPS, excluding currency shifts, along with a slowdown in sales growth.

Key Insights

The lackluster forecast comes a day after a disappointing outlook sent Coke shares plunging the most in more than 10 years. A challenging macroeconomic environment and weakening sentiment among U.S. consumer is hampering both companies. 

The company has raised prices on its drinks and snacks to help offset higher transportation and aluminum expenses, which helped boost revenue both in the North American beverage unit and for Frito Lay, which makes salty snacks like Tostitos. 

The latter has been a powerhouse for the company, but sales volume slipped in the quarter, possibly raising growth concerns. Pepsi, forecasting a decline in profit this year, said it would extend its cost-saving program through 2023, incurring US$2.5 billion in charges. The company said it plans to shutter plants and that 70% of the costs would come from severance and other “employee-related costs”.

Market Reaction

Pepsi shares were little changed in early trading. The stock had gained 1.9% this year through Thursday’s close, lagging the S&P 500 over that period.