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PepsiCo trims revenue outlook as North American snacking, key international markets lag

  • PepsiCo reported fiscal third-quarter earnings that beat Wall Street’s estimates, but its revenue was weaker than expected.
  • The food and beverage giant lowered its full-year outlook for organic revenue.
  • Recalls related to its Quaker Foods North America business continued to weigh on its sales.

PepsiCo on Tuesday lowered its full-year outlook for organic revenue after its second straight quarter of weaker-than-expected sales.

The repercussions of the Quaker Foods North America recalls, weakening demand in the U.S. and business disruptions in some international markets weighed on the company’s performance in the quarter, CEO Ramon Laguarta said in a statement.

For 2024, Pepsi now expects a low-single-digit rise in organic revenue, down from its prior outlook of 4% growth. The company reiterated its forecast for an increase of at least 8% for its core constant currency earnings per share.

Shares of the company fell less than 1% in premarket trading.

Here’s what the company reported compared with what Wall Street was expecting, based on a survey of analysts by LSEG:

  • Earnings per share: $2.31 adjusted vs. $2.29 expected
  • Revenue: $23.32 billion vs. $23.76 billion expected

Pepsi reported third-quarter net income attributable to the company of $2.93 billion, or $2.13 per share, down from $3.09 billion, or $2.24 per share, a year earlier.

Excluding items, the company earned $2.31 per share.

Net sales fell 0.6% to $23.32 billion. Organic revenue, which strips out acquisitions, divestitures and currency changes, rose 1.3% in the quarter.

Demand for Pepsi’s snacks and drinks dropped this quarter. The company reported that volume for both its food and beverage divisions declined 2%. Last quarter, executives said shoppers across all income levels are changing their behavior.

In particular, weak demand in North America weighed on Pepsi’s overall volume. Shoppers in the U.S. have grown more cautious, snacking less and making fewer purchases at convenience stores. And Mexican sales slowed, which Laguarta attributed in part to the country’s election in June.

Quaker Foods North America reported the steepest drop-off in volume, with a 13% slide. The company issued its first recall for potential salmonella contamination in December, then widened it in January. In June, Pepsi officially closed a plant tied to the recalls, although production had already stopped.

The consequences of the recalls are now diminishing, Laguarta and Pepsi CFO Jamie Caulfield said in prepared remarks.

Frito-Lay North America reported a 1.5% decline in volume. The company has been trying to offer more value to consumers and improve in-store availability with its snacks, which include Cheetos, SunChips and Stacy’s pita chips. While the division’s volume is improving sequentially, the broader category has slowed down compared with historical performance.

“After outperforming packaged food categories in previous years, salty and savory snacks have underperformed year-to-date,” Pepsi executives said in their prepared remarks.

This fall and winter, Pepsi plans to invest more in Doritos and Tostitos, helped by the football season. The company is offering bonus packs for Tostitos and Ruffles that offer 20% more chips.

Pepsi is also broadening its portfolio in the hopes of appealing to more health-conscious consumers. A week ago, the company announced its purchase of Siete Foods for $1.2 billion. The brand makes Mexican-American food, usually with accommodations for different dietary concerns.

Volume for Pepsi’s North American beverage business fell 3%. Brands like Gatorade and Pepsi saw revenue growth in the quarter, but the energy drink category — including Pepsi’s Rockstar — has seen demand weaken as traffic to convenience stores falls.

“I think it’s part of the economic cycle that we’re in, and that will reverse itself in the future, once consumers feel better,” Laguarta told analysts on the company’s conference call.

The Latin America and Africa, Middle East and South Asia markets also reported shrinking volume for both food and drinks.

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Source: Business - cnbc.com

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