PepsiCo has recently adjusted its forecast for 2024, revealing a notable dip in its sales expectations after its North American and international revenues fell short of Wall Street predictions during the third quarter. In an announcement made on a Tuesday morning, the beverage and snack powerhouse now anticipates a modest low-single-digit increase in organic revenue growth by year-end, which is a significant decrease from the previously projected 4% growth.
The markets reacted somewhat positively initially, with PepsiCo’s stock experiencing a slight increase of less than 1% in early trading following the earnings report. However, analysts, such as JPMorgan’s Andrea Teixeira, express a cautious outlook, labeling the stock trajectory as “negative to neutral.” Teixeira mentioned, “The cut in organic sales growth expectations and confirmation of profit outlook were largely expected due to the ongoing challenges in North America being somewhat balanced by improved margins and productivity.”
For the third quarter, PepsiCo reported adjusted earnings of $2.31 per share, marginally surpassing the anticipated $2.30. However, overall revenue fell short of estimates, coming in at $23.3 billion compared to the projected $23.8 billion. The company confirmed its commitment to achieving at least an 8% growth in core constant currency earnings per share—a target acknowledged to be ambitious given last year’s impressive 12% growth.
According to PepsiCo’s Chairman and CEO Ramon Laguarta, the company’s performance during the fiscal third quarter was adversely affected by what he described as “subdued category performance trends in North America,” in addition to complications arising from product recalls in the Quaker Foods division and geopolitical disruptions affecting various international markets. During a conversation with Yahoo Finance, he emphasized that consumers are facing significant economic challenges, leading them to make difficult choices regarding their food purchases. This shift in consumer behavior has heavily impacted their snack divisions, particularly in North America.
All sectors within PepsiCo’s North American operations, including Frito-Lay, Quaker Foods, and PepsiCo Beverages, underperformed relative to expectations. Consumers are pushing back against rising grocery prices, prompting the company to rethink its strategy. Despite this, PepsiCo reported some positive steps; it has been investing in enhancing the value offered to consumers and ensuring better stock availability in stores. The Frito-Lay segment, for example, saw only a minor volume decline of 1.5% in the quarter, slightly better than anticipated.
The company has also acknowledged the overarching inflationary pressures and increased borrowing costs which have compounded the challenges faced by consumers and their shopping habits. PepsiCo continues to pivot towards healthier offerings, promoting brands like SunChips, Stacy’s, and PopCorners to cater to a shifting consumer appetite.
Adding a new layer to its growth strategy, PepsiCo recently announced its plan to acquire the popular Mexican-American snack brand, Siete Foods, for an impressive $1.2 billion, marking a significant step in diversifying its portfolio.
Looking at key financial figures from the quarter, here’s how PepsiCo performed versus Wall Street expectations:
- Adjusted Earnings Per Share (EPS): $2.31, slightly above the expected $2.30
- Overall Revenue: $23.3 billion, compared to the sought-after $23.8 billion
- Organic Revenue Growth: 1.30%, while analysts had expected 3%
In North America:
– Frito-Lay grew 1%, against expectations of flat growth
– Quaker Foods declined by 13%, compared to an anticipated decrease of 10.44%
– PepsiCo Beverages held steady at 1%, slightly below the expected 1.86%
Regions outside North America also showed mixed results, with Europe at a 6% growth—less than the anticipated 7.45%—Latin America at 3% against a 4.49% forecast, and Asia Pacific facing a decline of 1%, marking a notable deviation from the 2.92% increase that was expected.
Investors are keenly watching how PepsiCo navigates these economic headwinds while attempting to maintain its competitive edge and consumer appeal in an unpredictable market. As the company pushes forward, it remains focused on fostering innovation and adapting to the evolving preferences of its consumers.