PepsiCo missed expectations for second-quarter revenue as a series of price hikes and competition from private-label brands slowed sales of its snacks and soda mainly in the United States, its largest market.
Analysts have said that product prices, which are starting to normalise almost after two years of multiple hikes, are still higher than the pre-pandemic levels, giving packaged-food companies such as PepsiCo little room to raise prices as volumes shrink.
PepsiCo raised average prices on its products by 5% for the quarter ended 15 June, in line with the first quarter. However, overall organic volumes slipped 3%.
Value-Conscious Consumers
Company executives said year-to-date performance across many food categories, including snacks, has been subdued and consumers have become more value-conscious with spending and preferences across brands, packages and channels.
Data from NielsenIQ showed sales at Frito-Lay North America, the company's snacking business that sells Lay's and Doritos chips, fell nearly 1.3% in the four weeks ended 15 June, while the overall salty snacks category in the United States saw a smaller 0.7% decline.
Frito-Lay North America, which contributed about 27% to PepsiCo's total revenue in fiscal 2023, is the company's second-largest business after North America beverages unit, which accounted for about 30% of overall sales.
Shares of the company fell 2.2% in premarket trading after PepsiCo also said it expected fiscal 2024 organic revenue to be about 4%, compared with prior expectations of at least 4%.
"They are on the lower side of projections here, they're seeing the weakness here and we've been talking about that for several quarters now and that seems to be ongoing, especially in the lower-income consumer, which is no surprise," said Don Nesbitt, senior portfolio manager at F/m Investments.
Quartlerly Performance
Easing production and other expenses from pandemic peaks are giving companies some relief from a surge in costs.
That and the impact of price hikes pushed up second-quarter gross margins by 120 basis points.
The company's revenue rose 0.8% to $22.50 billion (€20.73 billion) in the quarter, while analysts had estimated $22.57 billion (€20.80 billion), according to LSEG data.
On an adjusted basis, PepsiCo earned $2.28 per share, beating estimates of $2.16 per share.
"They are on the lower side of projections here, they're seeing the weakness here and we've been talking about that for several quarters now and that seems to be ongoing, especially in the lower-income consumer, which is no surprise," said Don Nesbitt, senior portfolio manager at F/m Investments.
Outlook
The company plans to elevate and accelerate its productivity initiatives and make disciplined commercial investments in the marketplace to stimulate growth.
Chairman and CEO, Ramon Laguarta, stated, “These investments will focus on surgically providing optimal value propositions within certain portions of our North America convenient foods portfolio, amplifying our advertising and marketing initiatives and leveraging our go-to-market distribution capabilities to enable more precise marketplace execution.
“As a result, we now expect to deliver approximately 4% organic revenue growth (previously at least 4%) and have a high degree of confidence in delivering at least 8% core constant currency EPS growth for full-year 2024.”
News by Reuters, additional reporting by ESM.
