TLDR:
- PepsiCo reported mixed Q3 earnings, missing revenue estimates but beating EPS expectations
- The company cut its 2024 organic revenue growth guidance to low-single-digits from 4% previously
- North American sales lagged expectations, with all three segments underperforming
- Changing consumer behavior and pushback against higher prices impacted results
- PepsiCo plans to invest in commercial activities and brand support to stimulate demand
PepsiCo, the global snack and beverage giant, has revised its 2024 sales outlook following a mixed third-quarter performance that saw North American and international sales fall short of Wall Street expectations.
The company now anticipates a low-single-digit increase in organic revenue growth for the year, down from its previous projection of 4% growth.
In its third-quarter earnings report, PepsiCo posted adjusted earnings per share of $2.31, slightly above the $2.30 expected by analysts.
However, revenue for the quarter came in at $23.3 billion, missing the anticipated $23.8 billion. The company’s stock showed a modest increase of less than 2% at market close following the release of its quarterly results.
PepsiCo Chairman and CEO Ramon Laguarta attributed the company’s performance to “subdued category performance trends in North America,” the impact of recalls at Quaker Foods North America, and business disruptions stemming from “rising geopolitical tensions in certain international markets.”
Laguarta noted that while some markets like Southeast Asia, India, Brazil, and parts of Eastern Europe were “growing nicely,” this growth was offset by a deceleration in other markets such as China, where consumers are feeling more constrained.
The company’s North American segments, including Frito-Lay, Quaker Foods, and PepsiCo Beverages, all fell below expectations. This underperformance is largely attributed to consumer pushback against higher prices at grocery stores.
PepsiCo acknowledged that “the cumulative impacts of inflationary pressures and higher borrowing costs over the last few years have continued to impact consumer budgets and spending patterns,” resulting in its salty and savory snack business underperforming year to date.
In response to these challenges, PepsiCo has been making investments to offer “more value to consumers” through a variety of pack sizes and enhance “in-store availability and presence.”
These efforts have helped improve volume performance trends, with the Frito-Lay snack business seeing a volume decline of 1.5% in the quarter, compared to expectations of a 1.81% decline.
PepsiCo CFO James Caulfield described pricing as “complex” during a call with investors, stating,
“We’re investing in affordability where it makes sense. But we’re investing in a number of levers to stimulate demand.”
The company is also focusing on what it calls “positive choices” with its healthier alternative brands, such as SunChips, Stacy’s, and PopCorners.
Despite the challenges, PepsiCo reiterated its expectation of at least an 8% jump in core constant currency earnings per share for the year. Jefferies analyst Kaumil Gajrawala commented on this, saying,
“Management still expects to grow EPS at least 8%, impressive given 12% growth last year. A proof point that the operating model can deliver in a tougher macro.”
Looking ahead, PepsiCo plans to “continue to invest in commercial activities and brand support to stimulate consumer demand” for the remainder of the year.
The company recently announced plans to acquire the Mexican-American meal and snack brand Siete Foods for $1.2 billion, a move that analysts see as an opportunity for expansion, particularly within the US market.
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