PepsiCo Sales Disappoint as US Consumers Cut Back on Snacks

Pepsi products at a store in Crockett, California, US. Photographer: David Paul Morris/Bloomberg (David Paul Morris/Bloomberg)

(Bloomberg) -- PepsiCo Inc. reported weaker-than-expected revenue growth as its snack-food business was hurt by increasingly budget-focused shoppers and a recent Quaker Foods recall.

The maker of Doritos chips and Mountain Dew sodas said Thursday that organic revenue rose 1.9% in the second quarter, missing the 2.9% average estimate of analysts surveyed by Bloomberg. The volume of food products sold in the period was down 2% from a year earlier, including steeper drops for the Frito-Lay and Quaker Foods businesses in North America.

After years of price increases and sales growth, PepsiCo’s US business is struggling. Persistent inflation has forced many shoppers to cut back on spending and switch to cheaper supermarket-owned brands. The salty snacks category has been particularly lackluster as consumers focus more on nutrition and affordability.

“In the US, there is clearly a consumer that is more challenged,” Chief Executive Officer Ramon Laguarta said on the company’s earnings call. He added that pressures at Frito-Lay are “an issue of value, not an issue of anything else,” and that weight loss drugs were not having an impact so far.  

PepsiCo shares fell as much as 3.4%, touching the lowest intraday price since October. The stock has fallen 13% over the past 12 months, compared with a 7% gain in the S&P 500 Consumer Staples Index and a 5.9% gain in shares of rival Coca-Cola Co.

In North America, PepsiCo volumes fell in both food and beverages. The company remains impacted by the large recall of Quaker Oats cereals, bars and snacks that began late last year. Volume was down 17% in the Quaker Foods division from a year ago.

Internationally, PepsiCo fared better with organic sales up across the board, which excludes the impact of acquisitions. Organic revenue in Latin America and Asia Pacific grew 2% and 1%, respectively, but fell short of analyst estimates as food volumes shrank.

India was described by Laguarta as a “big growth space,” and even in China, where consumers are saving more than spending, he sees opportunity for the company’s relatively inexpensive products.

To bring back consumers, PepsiCo will focus “surgically” on promotions while increasing certain advertising and marketing initiatives, Laguarta said in a statement. The company said it expects that consumers will remain budget conscious and overall category growth will moderate. It also plans to improve productivity with more digitalization and simplification of the company, Laguarta told analysts. 

“The group will have to lean into cost-cutting and productivity initiatives in order to offset some of the impacts of lower volumes and keep profit targets on track in the short term,” said Aarin Chiekrie, an equity analyst at Hargreaves Lansdown.

Conagra Brands Inc. also highlighted lower consumption trends and productivity initiatives in its earnings release Thursday. Other packaged food makers such as General Mills Inc. and Kraft Heinz Co. have also been focusing on productivity as a way to improve margins in the face of sluggish sales growth.

Food is an increasingly big part of PepsiCo’s business, accounting for 59% of global revenue in 2023.

The Purchase, New York-based company reiterated most aspects of its full-year forecast aside from now targeting organic revenue growth of 4% for the year compared with “at least 4%” previously.

Core earnings per share were $2.28 for the quarter, beating the average analyst estimate of $2.15. The company hasn’t missed quarterly profit estimates in more than 10 years, according to data compiled by Bloomberg.

(Updates with details from earnings call throughout. A previous version of this story corrected the metric in the headline.)

©2024 Bloomberg L.P.

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