By Uday Sampath Kumar and Praveen Paramasivam
(Reuters) -The world’s top two cola makers, PepsiCo and Coca-Cola, on Thursday warned of pressure on profits this year from a relentless rise in costs after trouncing sales expectations on robust demand and price increases.
Costs from aluminum cans to labor and shipping have surged due to pandemic-induced disruptions and the spread of the Omicron coronavirus variant, and the companies have responded with price hikes.
However, with costs still high and supply bottlenecks showing no signs of easing, analysts have cautioned that the price hikes will not likely be enough to fully cushion packaged food makers’ profit margins.
For Coca-Cola, adjusted operating margin fell to 22.1% in the fourth quarter, from 27.3% a year earlier. PepsiCo’s adjusted core operating margin declined 183 basis points.
“Even PepsiCo is proving susceptible to the extraordinarily challenging cost environment,” Barclays analyst Lauren Lieberman wrote in a note.
PepsiCo expects fiscal 2022 core earnings of $6.67 per share, below analysts’ expectations of $6.73, according to IBES data from Refinitiv. Coca-Cola forecast full-year adjusted earnings per share to increase 5% to 6% from the $2.32 posted in 2021, compared with estimates of a 6% rise.
PepsiCo Chief Financial Officer Hugh Johnston told Reuters that the company could potentially raise prices further later in the year if costs climb more than its expectations, and did not rule out some product shortages.
“We control our supply chain basically all the way to the shelf. That puts us in a relatively better position, but I wouldn’t say we’re not going to have challenges. We’re not immune to that,” Johnston said.
PepsiCo’s net revenue rose 12.4% to $25.25 billion in the fourth quarter, beating estimates of $24.24 billion, while Coca-Cola’s adjusted revenue rose 10.1% to $9.47 billion, topping estimates of $8.96 billion.
The companies’ shares were flat in premarket trading.
PepsiCo on Thursday also announced a 7% increase in annual dividend and a new $10 billion stock buyback program.
(Reporting by Uday Sampath and Praveen Paramasivam in Bengaluru; Editing by Sriraj Kalluvila)
