PepsiCo quarterly earnings disappoint due to slowdown in snack and beverage sales

PepsiCo missed second-quarter revenue expectations Thursday as a series of price increases and competition from generic brands slowed sales of its snacks and soft drinks mainly in the United States, its largest market.

PepsiCo (PEP.O) missed second-quarter revenue expectations Thursday as a series of price increases and competition from generic brands slowed sales of its snacks and soft drinks mainly in the United States, its largest market.

Analysts have said that product prices, which are beginning to normalize after nearly two years of multiple increases, are still higher than pre-pandemic levels, giving packaged food companies like PepsiCo little room to raise prices as volumes decline.

PepsiCo increased average product prices by 5% during the quarter ended June 15, in line with the first quarter. However, total organic volumes declined by 3% in the reporting period.

Company executives said performance to date in many food categories, including snacks, was subdued as consumers had become more value-conscious while spending.

"In general, we're seeing a lot more price sensitivity and consumers looking for more value across all income groups. Now that's something we have to take into account," said PepsiCo CEO Ramon Laguarta.

He also said the company had been increasing productivity and cannot continue to raise prices. PepsiCo is adding new flavors to its brands such as Lay's, Doritos and Cheetos to suit various consumer preferences, while also offering products at different price points.

"We have to put a lot more emphasis on our efficiency," Laguarta said. Frito-Lay North America, the company's snack business that is also its second-largest, saw volumes fall 4% while the North America beverage division, its largest division, experienced a 3.5% decline.

The company's shares fell as much as 3.4% to a nine-month low of $158.03 after PepsiCo also said it expected organic revenue for fiscal 2024 to be about 4%, compared with previous expectations of at least 4%.

"They're on the low side of the projections here, they're seeing weakness and we've been talking about that for several quarters and it looks like it's continuing," said Don Nesbitt, senior portfolio manager at F/m Investments.

Still, reduced production and other expenses since the peak of the pandemic, along with the impact of price increases, helped PepsiCo post an adjusted profit of 1TP4Q2.28 per share, beating LSEG estimates of 1TP4Q2.16.

The company's revenue rose 0.8% to $22.50 billion in the quarter, while analysts had estimated $22.57 billion. "It's not a business to sit idle and there's a clear focus on profitable growth, so PepsiCo is going to have to use various levers depending on the products to try to stay on top," said Dan Coatsworth, investment analyst at AJ Bell.

Collaboration: Grupo Auge | Reuters (International).