PepsiCo, LVMH 3Q23 Results: New Data and Commentary From Key Advertisers

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With third quarter earnings season just beginning, we are getting some preliminary data about the quarter which just finished, offering some clues about certain parts of the advertising industry. 

Within the US, I continue to expect advertising growth that improves, with stronger third quarter growth on a year over year basis vs. what we saw in the second quarter - largely aided by very easy comparables.  To be sure, it won’t necessarily all come from large brands: if Meta along experiences the high double digit rate of growth they have guided to globally in the US, this alone would add significantly to the overall growth we will see, and much of that may come from smaller domestic businesses or international ones (such as Temu or Shein) aggressively deploying ad budgets into the United States.

But as to companies who have now provided color on their third quarters, two multi-billion dollar advertisers reported yesterday, PepsiCo and LVMH with overall positive results (although decelerating for both companies).

First, PepsiCo posted 9% organic revenue growth during its third quarter, decelerating from the second quarter’s 13% pace, including 7% growth for Pepsi Bottling’s North America (PBNA) division, 5% at Quaker’s North America business and 7% at Frito-Lay North America.   Guidance for full year organic growth remains at 10%.

During the third quarter, “higher advertising and marketing expenses” occurred globally, at PBNA and across the world’s regions, although no commentary was provided on advertising spending trends at Frito-Lay or Quaker’s primarily domestic divisions.  This was similar to what occurred during the second quarter.  At PBNA, the company said “Investments…made in advertising, digitalization, and go-to-market execution have helped drive growth across the portfolio.” 

One interesting (to me, at least) consumer and brand-focused comment that was made during the call in the context of shifting price-pack-architectures, which are coinciding with falling overall volumes of beverage sales.  The company’s CEO Ramon Laguarta said “there's there's two big variables that we're trying to optimize. One is consumer interaction with our brands. And the proxy we're using for that is units or specific purchasing act. And then the other one is obviously margin for the overall business. And those are the two variables that we're maximizing. In both cases, units are growing much faster than volume.”

Meanwhile, LVMH also reported 9% organic growth, similarly weaker than the double-digit levels of the first half of the year.  Wines & Spirits, already soft in the first half, were even moreso in the third quarter (although what the company describes as a “value-based” strategy for its Champagnes appeared to result in relatively more favorable, if still negative, results for those products vs. Cognac and Spirits which were down by much more).  Mapping to a similar trend, the US-focused Constellation Brands which reported last week also saw significant declines in its wines and spirits business in that company’s third quarter (ending in August), more than offset by its much bigger beer business.

Selective Retailing – especially including Sephora – by contrast was very strong, with 26% organic growth, consistent for the quarter and the year-to-date.    

Looking at the company’s regions, on a company-wide basis, across the portfolio, the US was softest with only 2% organic growth, but this represented a sequential improvement vs. Europe and Asia which decelerated meaningfully, albeit to what were still much-higher levels (7% in Europe, 11%in Asia ex-Japan and 30% in Japan).

Although we didn’t get much commentary about marketing and advertising from the call, even if the percentage of revenue allocated to advertising fell, increases could very well have occurred given the relatively strong revenue results.