Key Takeaways Despite generating $79 billion in net revenue in 2021, PepsiCo is the latest company to lay off staff. According to an internal memo, hundreds of corporate roles are set to be eliminated.
PepsiCo is the latest large cap company to announce their plans to reduce their workforce. The multinational food, snack and beverage corporation will be laying off employees from corporate positions in its North American snacks and beverages division. We've seen plenty of corporate belt-tightening in the tech and media sectors, but workforce cutbacks are extending to other industries now. We'll look at the recent PepsiCo layoffs and other cuts to examine the significance on the overall economy. According to an internal memo obtained by the Wall Street Journal, PepsiCo is eliminating hundreds of positions from roles at their headquarters here in the U.S.
The memo said the layoffs are happening 'to simplify the organization so we can operate more efficiently.' According to the sources, the layoffs will happen mainly in the beverage business since the snacks division was able to cut positions using a voluntary retirement program. The North American beverage business is based in Purchase, New York. The snacks and packaged-foods business has headquarters in Chicago, Illinois, and Plano, Texas.
As of December 25, 2021, PepsiCo had about 309,000 employees worldwide, with 129,000 of them based in the U.S. Consequently, these cutbacks aren't a significant cause for concern like some of the other steep figures we've seen. PepsiCo is known for selling Doritos, Quaker Oats, Gatorade, Cheetos, Pepsi-Cola, Lay's, and more. During the recent earnings report, the company mentioned they were cutting costs by using smaller sizes for their variety packs. How's PepsiCo performing financially?
We looked at PepsiCo's latest financial results to determine if these cutbacks could have been foreseen. PepsiCo reported its earnings for the third quarter of 2022 on October 12.
Here are the key highlights: PepsiCo expects to deliver 12% organic revenue growth for the fiscal year 2022, up from the original figure of 10%. Revenue for the quarter went up 9% year over year to $21.97 billion, much higher than analysts' expectations of $20.84 billion. As a result adjusted earnings per share were at $1.97, up from $1.84. Net income was $2.7 billion, up from $2.22 billion one year ago.
PepsiCo CEO Ramon Laguarta spoke about how the summer had many impulse purchases that boosted revenue. Laguarta commented on the higher prices on the earnings call, stating, 'Our brands are being stretched to higher price points, and the consumers are following us.'
It's worth noting that shares of PepsiCo went up 4% due to these positive financials. While PepsiCo has reported stronger financial results than expected, the company is still looking to slash expenses to manage concerns of a possible 2023 recession.
PepsiCo products are consumed in over 200 countries and territories globally. The company was able to generate net revenue of $79 billion in 2021.TryqAbout the Large Cap Kit
How's the labor market?
Despite the announcements about layoffs in the tech industry, the jobs market has remained surprisingly resilient. Recent data from the Bureau of Labor Statistics showed that non-farm payrolls went up by 163,000 in November.
The unemployment number didn't budge, it stayed at 3.7%. At a reported 0.6%, wage growth doubled the original projection in November.
While the Fed focused on combating inflation with aggressive rate hikes, the labor market didn't get the memo. The confusing labor market has perplexed economists about what will happen next.
With inflation showing some signs of slowing down, there are hopes that the rate hikes will eventually stop.
However, Fed officials have often pointed to the resilient labor market as an indication that additional monetary policy tightening is required to cool inflation. This is because higher wages are causing prices to go up as companies offer competitive salaries to attract labor.
What are some other notable layoffs?
It feels like a week doesn't pass by without more stories about layoffs. While many recent layoffs occurred in the tech sector, there are new reports from other industries as we brace for the possibility of a recession in 2023.
Here are some of the notable layoffs that have garnered media headlines: Meta announced that they would be slashing 11,000 positions. Ford Motor Co. declared they would cut 3,000 jobs during the summer. Morgan Stanley laid off about 2% of its workforce. BloomTech let go of almost half its workforce. BuzzFeed is letting go of 12% of its workforce. Amazon could let go of up to 20,000 employees globally, double the original figure announced in mid-November.
Many companies in the tech sector had to get aggressive about hiring during the pandemic as demand shifted and they experienced an unprecedented boom. Now, they can't afford to keep those workers.
The hiring freezes and job cuts in corporate roles nationwide started this summer and should continue for the foreseeable future. Companies aren't sure what 2023 will bring since 2022 was volatile for many industries.
Do all of these layoffs indicate an oncoming recession?
While the layoffs don't indicate that these blue chip companies are in a dire financial position, big companies are looking to cut expenses as inflation remains stubbornly high and recession fears loom.
These cutbacks indicate that the economy could finally enter a recession in 2023 or that major businesses are increasingly worried about their financial outlook.
Fed Chair Jerome Powell has been candid when he speaks about the importance of slowing down the economy and the impact of the labor market.
He recently spoke about how wage pressure contributes to inflation, stating, "Currently, the unemployment rate is at 3.7 percent, near 50-year lows, and job openings exceed available workers by about 4 million--that is about 1.7 job openings for every person looking for work. So far, we have seen only tentative signs of moderation of labor demand."
On the flip side, many analysts feel that these tech businesses and big companies simply hired more staff than they needed during the pandemic months, so now they're forced to adjust expenses as consumer confidence declines.
How should you be investing?
As an investor, it can be challenging to figure out if these companies are cutting positions to slash costs and remain profitable during turbulent times or if they're bracing for a significant economic slowdown. That said, it's understandable if you're unsure how to invest.
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