Sunday, February 25, 2024

Will Pepsi’s Carrefour showdown result in more price disputes?

Key Points

  • French grocery giant Carrefour stopped carrying several PepsiCo products, citing unjustifiably high prices.
  • PepsiCo shares are trading 3% lower since Carrefour’s announcement on January 4.
  • While the standoff affects both companies, it’s likely the dispute will eventually be resolved to restore product supply.
  • 5 stocks we like better than PepsiCo

PepsiCo Inc. NASDAQ: PEP and French grocery giant Carrefour SA OTCMKTS: CRRFY are pointing fingers at each other, with each blaming the other for a dispute over prices.

The PepsiCo chart shows the stock trading 1.66% lower for the week, after the close on January 11. 

Carrefour is one of the largest retail chains globally. It holds a significant presence in the European grocery market. The company is headquartered in France and has a substantial retail footprint across Europe, and also operates stores in Brazil and Argentina. Its store count numbers in the thousands. 

On January 4, news broke that Carrefour said it would stop carrying some PepsiCo products because of what it called unacceptable price increases. 

PepsiCo stock fell that day, and is down 3% since then. 

Inflation pushed food prices higher

According to reports, Carrefour represents about 0.25% of PepsiCo’s total revenue. As everyone with a pulse knows, grocery prices have gone up due to inflation, labor costs and the cost of commodity inputs. For example, the war in Ukraine caused wheat, corn and energy prices to increase. All of that contributed to higher costs for food processing companies, which they passed along to consumers.

Like other food companies, PepsiCo increased prices to account for its own higher costs.

Carrefour stopped selling Pepsi, Doritos, Lay’s and Cheetos chips, Benenuts snacks, Alvalle gazpacho, Lipton teas, 7 Up soft drinks and Quaker foods. 

In October, PepsiCo told The Wall Street Journal that the company expected price increases on its products to slow this year. 

PepsiCo reports its fourth quarter on February 9, with analysts expecting earnings of $1.72 per share on revenue of $28.47 billion. Those would be year-over-year increases. 

Track record of topping analysts’ views

PepsiCo earnings data shows a long history of beating analysts’ net income views. In fact, the “whisper number” for Pepsi’s earnings is $1.75. The whisper number is an unofficial earnings estimate circulated among analysts who don’t agree with the consensus view. 

When it comes to that view, Wall Street’s rating on PepsiCo stock is “hold,” as PepsiCo analyst forecasts show. The price target is $186.93, an upside of 12.52%. 

Pepsi disputes Carrefour’s story

PepsiCo isn’t agreeing with Carrefour’s version of events. The company said it decided to stop supplying Carrefour’s stores in Europe because the companies hadn’t agreed on the terms of a new contract. 

In a statement provided to the Wall Street Journal, a PepsiCo spokesman said, “Regrettably, Carrefour has mischaracterized the chain of events. Given the lack of agreement on a new contract, we stopped supplying to Carrefour at the end of the year, something they were aware could happen. We hope we can agree on terms soon so our products can be back on their shelves for consumers to enjoy.”

Carrefour rebutted that interpretation.

The two companies have been negotiating over a contract update for the past few months. The French government has been pushing food suppliers to figure out ways to lower prices for consumers. 

Not the first grocer-producer showdown

The showdown won’t last forever. Grocers and food suppliers have faced standoffs before. Carrefour and PepsiCo need each other, so there’s some sound and fury is going on here, but the companies will undoubtedly come to an agreement. 

PepsiCo has been underperforming other consumer staples stocks, tracked by the Consumer Staples Select Sector SPDR Fund NYSEARCA: XLP

In the end, it doesn’t matter whether it seems that Pepsi or Carrefour blinks. It’s also unlikely that the dominoes will fall as other grocery chains follow suit. It’s a little too easy to say that the Coca-Cola Co. NYSE: KO is PepsiCo’s biggest competitor, but in the snack food arena, Kellanova NYSE: K and Mondelez International Inc. NASDAQ: MDLZ are chief rivals. 

Within the consumer staples sector, PepsiCo has been underperforming all three of those stocks. Snack foods have led the company’s growth, as investors grew concerned about declining sales volume on the beverage side. 

Wall Street expects PepsiCo earnings to grow 11% when the company reports 2023. This year, that’s expected to grow by another 8% to $8.15 a share. 

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