an effective strategy to reach consumers at home delivered robust growth in 2021
wherever you are, they will find you and they will serve you. that’s one strategy that companies successfully navigating the pandemic have adopted. five-star hotels and multiplexes adapted to home delivery, quick commerce ie. instant delivery of groceries became a thing, even government services were briefly being delivered to the doorstep. one category that benefited majorly from this “hub-at-home” trend was snacks and beverages, leading to stellar growth for the two market leaders, CocaCola and PepsiCo.
but despite the strong report, PepsiCo’s shares slipped 2.1% in the subsequent trading session on February 10. are investors missing a trick?
prior to 2021, the compound annual growth rate (CAGR) for PepsiCo’s revenue was a paltry 2%. in 2021, it registered over six times that figure with a 12.9% growth in global revenue, including a 12.4% surge over the year-ago period for the October to December quarter. that isn’t an inflated figure over a low base either as PepsiCo had registered a 4% growth in 2020.
this, despite an average 7% price hike in PepsiCo’s snacks and beverages in Q4 over the preceding quarter. the fact that sales grew at such a pace despite the products getting costlier is naturally a good sign of robust demand. that is expected to continue into this year, with the company projecting a 6% growth in organic sales (excluding acquisitions and divestments) for 2022.
however, despite the booming growth in sales, the profit for Q4 was actually down 9.3% over the previous year. this was largely due to inflation causing a surge in costs of input materials, but also in part due to lost productivity from certain manufacturing units due to Covid-19. the fact that profit reduced by nearly double figures despite the aforementioned price hike in the quarter reflects how significant the impact of inflation is on the company.
despite the slump in profits, PepsiCo has announced that it will raise its dividend by 7%, beginning with its June payment. it will be the company’s 50th consecutive annual dividend hike, which is an incredible achievement. with the report coming out during a bearish period in the market, PepsiCo might just be a bargain pick hiding in plain sight at the moment.