Frito-Lay’s bold flavour combos, novel texture profiles and new packs deliver another strong year for PepsiCo

By Gill Hyslop

- Last updated on GMT

Some of the latest innovations released by the snacking giant. Pic: PepsiCo
Some of the latest innovations released by the snacking giant. Pic: PepsiCo

Related tags Pepsico Frito-lay north america Quaker oats company Snacks Earnings Call

Investments in consumer-centric innovations – like Frito-Lay Minis, Doritos Sweet & Tangy BBQ, Doritos dips, Cheetos Bolitas and SunChips Black Bean Spicy Jalapeno – were instrumental in the division’s strong growth.

The multinational’s price hikes to mitigate inflation buoyed sales for its snacks and beverages, but volume fell 2% as the markup slowed consumer demand. Volume fell 7% at Quaker Foods North America and 2% at its North American beverage division.

Despite this, PepsiCo plans to sharpen its ‘revenue management capabilities’ – meaning price hikes will persist in 2023.

PepsiCo performed well across all categories and geographies for Q4 and FY 2022, but it was Frito-Lay North America that clocked in with the highest revenue growth, albeit reporting flat volume for the quarter.

In Q4, Frito-Lay North America delivered 18% organic revenue growth; its international business brought in 16%; Quaker Foods North America delivered 10%; and PepsiCo Beverage North America’s increased 10%.

For FY 2022, Frito-Lay again led, with 17% organic revenue growth; followed by International with 16%; Quaker at 13%; and Beverages at 11%.

Breaking it down

PepsiCo logos

Many of its Frito-Lay North America core brands – including Doritos, Cheetos, Lay’s, Ruffles, Tostitos and Fritos – delivered double-digit net revenue growth. So, too, did its smaller, emerging brands geared towards more nutritious snacking, such as PopCorners, Smartfood and SunChips.

For the full year, PepsiCo gained savoury snack share in Brazil, China, the UK, India, Pakistan, Saudi Arabia, Spain, Turkey, Netherlands, Australia and Chile.

Quaker enjoyed market share gains in the snack bars, lite snacks and RTE cereal categories, but saw operating profit fall about 3% as higher production costs took a bite out of margins. The division continues to innovate towards on-trend positive choices, such as Quaker On-The-Go Snack Multipack, Quaker Puffed Granola, Quaker Oat Flour and Quaker Rice Thins, along with expanding popular brands with products like Cap’n Birthday Crunch, Pearl Milling Apple Cinnamon and Cheetos Mac ’N Cheese.

PepsiCo’s results

Ramon Laguarta

This allowed PepsiCo to report a 14.6% increase in Q4 to $28bn – its 5th​ consecutive quarter of double-digit organic revenue growth. Full year net revenue was $86.4bn, a 14.4% increase over the year prior and beating the estimate of $85.2bn.

However, fourth-quarter net income of $518bn (37 cents per share) was down from $1.32bn (95 cents per share) a year earlier.

Net sales rose 10.9% to $28bn for the quarter – it’s 5th​ consecutive quarter of double-digit organic revenue growth. Organic revenue climbed 14.6% – its 5th​ consecutive quarter of double-digit growth.

Q4 2022 gross profit increased 11%, while operating profit grew by 7%. FY 2022 gross profit jumped 9%; operating profit rose by 8%, aided by the company’s strong net revenue growth and holistic cost management initiatives.

At the heart of this growth is pep+ (PepsiCo Positive), its strategic platform that places emphasis on long-term sustainable performance, such as:

  • Evolving its portfolio towards positive choices, such as portion-control, zero sugar, lower sodium and low-or-no saturated fats;
  • Partnering with Archer Daniels Midland (ADM) to expand regenerative agriculture practices across their shared North American supply chains;
  • Improving operational water-use efficiency by 25% in high water-risk areas by 2025;
  • Implementing alternative fuel vehicles, onsite renewable energy generation, energy storage equipment and employee electric vehicle charging stations at a Frito-Lay plant in California;
  • Issuing a $1.25bn Green Bond in July 2022 with a 10-year maturity that will focus on investments in virgin plastic waste reduction, decarbonisation, water-use efficiency and regenerative agriculture.

“We are pleased with our results for the fourth quarter and the full year as our business remained resilient and delivered another strong year of growth. Our results demonstrate that the investments we have made in our people, brands, portfolio, value chain, and go-to-market systems are working,” said chairman and CEO Ramon Laguarta.

“Moving forward, we will continue to focus on driving growth and winning in the marketplace while developing advantaged capabilities to fortify our businesses for the long-term. This includes embedding pep+ at the centre of our business in how we innovate, operate, run our teams, and build our brands.”

Looking ahead

PepsiCo agriculture

In a statement, PepsiCo said it is projecting its North American divisions will stay resilient and its international markets will perform well in 2023.

Added Laguarta, “For 2023, we expect to deliver 6% organic revenue growth and 8% core constant currency earnings per share growth.

“We also announced a 10% increase in our annualised dividend, starting with our June 2023 payment, which represents our 51st​ consecutive annual increase, and plan to repurchase approximately $1.0 billion worth of shares.”

PepsiCo said shareholders can expect returns of around $7.7bn, comprised of both $6.7bn in dividends and $1bn in share repurchases.

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