PepsiCo announces they are cutting earnings projections for 2011. CEO Indra Nooyi said commodities prices are to blame. PepsiCo expects earnings to grow by 7-8% in 2011. Nooyi stressed this is still good growth for a $63 billion company, especially in a climate where consumers aren’t buying and commodity prices are up.
The news caused stock prices for PepsiCo to drop in after hours trading. Shares had already fallen about 4% since fall 2010, according to a Reuters report.
Though PepsiCo plans to raise prices to offset costs in 2011, they cannot fully compensate for the high commodities prices through price increases because consumers simply won’t pay it. Prices for cheese, grain and meat are up, making snack production more expensive.
PepsiCo’s holdings include Pepsi-Cola, Tropicana juice, Frito-Lay snacks and Quaker Oatmeal. PepsiCo’s food holdings make them more vulnerable to commodities prices than their competitor Coca Cola, who announced an increase in sales volume for 2010. Coca Cola also plans to raise prices in 2011.
PepsiCo’s volume increased 1% in North America in 2010 compared to Coca Cola’s 3% volume increase. PepsiCo shareholder James Tierney said Pepsi was doing, “pretty good,” for the times. “PepsiCo is one of the best houses in a really tough neighborhood right now,” quoted Yahoo Finance.
PepsiCo’s fourth quarter 2010 growth was better than expected. Company executives say unemployment is still high and consumers just aren’t spending their money. PepsiCo’s net income fell to $1.37 billion from $1.43 billion in the fourth quarter of 2010. This translates to a fall from 90-cents per share to 85-cents per share. Fourth Quarter volume was up three percent in snacks and twelve percent in beverages for PepsiCo.
PepsiCo said the lower earnings projections could continue beyond 2011. In the long term, PepsiCo expects annual growth percentages in the high single digits. “Boy, if you could find other companies like ours you should go ahead and invest in them,” Nooyi said.