Business

PepsiCo and Conagra plan to battle rising costs with higher prices

A shopper reaching for a bottle of Diet Pepsi soda in a grocery store in Atlanta, Georgia.

Chris Rank | Bloomberg | Getty Images

PepsiCo and Conagra Brands said Tuesday they plan to pass along higher input costs to customers as inflation accelerates.

Earlier in the day, the Department of Labor reported that the consumer price index jumped 5.4% in June compared with a year ago. It’s the biggest monthly gain since August 2008. Food prices rose 0.8%.

The Federal Reserve’s current position is that these inflationary pressures are “transitory,” although the central bank’s New York district found that consumers have different expectations. Maybe that’s because they’ll soon see higher prices on products like Slim Jim jerky and Orville Redenbacher popcorn, which are owned by Conagra.

Conagra CEO Sean Connolly said in a statement that the company has upgraded its existing plans to respond to higher input costs. He explained that inflation accelerated during the fiscal fourth quarter ended May 30, leading the company to expect materially higher costs than it did at the end of its fiscal third quarter in late February.

“While we are pleased with the initial results, there will be a lag between the time we are hit with higher costs and when we realize the benefits of our actions,” Connolly said.

The delay is expected to hit Conagra’s results over the next six months, leading the company to cut its fiscal 2022 forecast. The news hit Conagra’s stock, dragging shares down by more than 4% despite the company reporting better-than-expected quarterly earnings and revenue. The stock has fallen 5% this year, lowering its market value to $16.5 billion.

Pepsi is also seeing higher costs for some ingredients, freight and labor. During a conference call Tuesday, CEO Ramon Laguarta told analysts that the company thinks it can manage the higher costs through a combination of higher prices and increased productivity. CFO Hugh Johnston said Pepsi expects to keep hiking prices after Labor Day.

Pepsi executives made similar comments on the prior quarter’s conference call, although inflation has accelerated since then. Luckily for Pepsi, its ingredient basket is diverse, and no single commodity accounts for more than a tenth of the basket.

Shares of the beverage and snack maker rose more than 2% to reach an all-time high after the company’s second-quarter earnings crushed Wall Street’s estimates. The company also raised its forecast as consumers returned to restaurants and movie theaters. The stock is up 3% this year, giving it a market value of $212 billion. That’s nearly 13 times the valuation of Conagra.

Inflation is also trickling down to another kind of food buyer: restaurants. Chipotle Mexican Grill CEO Brian Niccol said Tuesday on CNBC’s “Squawk Box” that the burrito chain is seeing some cost pressure.

“Whether or not that is permanent in some of the key inputs for our business is to be determined, but I think the positive is that the supply chain is starting to break through some of the bottlenecks that we were battling throughout Covid,” he said.

View Article Origin Here

Related Articles

Back to top button