PepsiCo (PEP) on Tuesday revised its 2024 sales outlook after third-quarter North American and international sales fell short of Wall Street expectations.
The snack and beverage giant told investors Tuesday that it expects to end the year with a low-single-digit increase in organic revenue, below the 4% growth previously expected.
Pepsi shares rose less than 1% in intraday trading after the quarterly results were announced.
JPMorgan analyst Andrea Teixeira said Tuesday that she expects the stock to remain “negative to neutral.”
“We believe that the lower organic sales growth outlook and reiteration of the earnings outlook were widely expected as continued challenging trends in North America are offset by improved margins and productivity,” he said in a note to clients. โ he said.
The company’s third-quarter earnings came to an adjusted $2.31 per share, slightly above analysts’ expectations of $2.30. However, sales for the quarter fell short of Wall Street expectations, coming in at $23.3 billion versus expectations of $23.8 billion.
PepsiCo also reiterated its outlook for core constant currency earnings per share to increase by at least 8%.
“Management still expects EPS to grow at least 8%, which is surprising given last year’s 12% growth rate,” said Jefferies analyst Kaumil Gajrawala. “This is proof that we can achieve this even in a more challenging macro environment.”
PepsiCo navigates ‘very difficult’ consumers
For the remainder of the period, PepsiCo “will continue to invest in commercial activities and brand support to stimulate consumer demand,” Chairman and CEO Ramon Laguarta said in a release.
Laguarta said Pepsi’s fiscal third quarter results were affected by “weak category performance in North America,” the impact of the Quaker Foods North America recall, and “heightened geopolitical tensions in certain international markets.” It added that the company was affected by business disruption due to the
Laguarta noted that some markets are “growing well,” including Southeast Asia, India, Brazil and parts of Eastern Europe. But that was offset by a slowdown in other markets, such as China, where “consumers are feeling a little more constrained.”
In a phone interview with Yahoo Finance, Laguarta said consumers are facing “very difficult times” and making “a lot of trade-offs” when it comes to food. Laguarta explained that these trade-offs are affecting the snack industry most severely.
All three of PepsiCo’s North American divisions, including Frito-Lay, Quaker Foods and PepsiCo Beverages, posted weaker-than-expected sales as they try to counter a consumer backlash over soaring prices at grocery stores.
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The company said in a statement that it is investing to deliver “more value to consumers” through a variety of pack sizes and strengthen “in-store availability and presence,” which has helped drive volume performance. He said that this led to an improvement in the trend. The company’s Frito-Lay snack business saw sales volume decline 1.5% for the quarter, compared to the expected 1.81%.
The company added that “the cumulative impact of inflationary pressures and rising borrowing costs over the past several years continues to impact consumer budgets and spending patterns,” resulting in the salty snacks business’ year-to-date results. He added that it was below.
Citi analyst Filippo Farolni said that was a “big problem” for the company. “If you look at the cumulative pricing over the past three years, essentially snack pricing is about 40% higher compared to 2021,” Farolni said. Pepsi’s snack pricing was much higher than the 25-30% increases in other categories such as cookies, crackers and meals.
Pepsi Chief Financial Officer James Caulfield said on a conference call with investors that pricing is “complex.”
โWe invest within reason and at affordable prices,โ Caulfield said. โHowever, we are investing in a number of measures to stimulate demand… [It’s] It is too early to ask about future price expectations. โ
Pepsi also said the company is ramping up its so-called “positive choices” with healthier alternative brands such as Sun Chips, Stacy’s and Pop Corners.
After the third quarter, the company also announced plans to acquire Mexican-American meal and snack brand Siete Foods for $1.2 billion.
Farolni noted that Siete’s ties to Hispanic heritage “accommodates a rapidly growing segment of the U.S. population,” adding that expansion will be key for PepsiCo. The brand’s sales growth rate is 30% to 40% year over year.
“Pepsi has a huge opportunity to expand in the United States,” Farolni added. “That’s going to be the focus in the short term, and maybe in a few years, that’s going to be the focus in the long term.” [Pepsi will] There is potential to bring it internationally. โ
Rows of Quaker Oats’ original Oat So Simple Pots (Porridge Oats’ convenient recyclable pots) are stacked on a supermarket shelf in Leeds, England, on July 3, 2022. (Daniel Harvey Gonzalez/Photo via Getty Images) (Daniel Harvey Gonzalez via Getty Images)
Here’s how PepsiCo reported compared to Wall Street expectations, according to Bloomberg consensus data:
Adjusted earnings per share: $2.31, $2.30 expected
Revenue: $23.8 billion to $23.3 billion
Organic revenue growth rate: 3% to 1.30%
North America:
Frito-Lay: 1% (compared to flat)
Quaker Food: -13% (compared to -10.44%)
PepsiCo Beverages: 1% (compared to 1.86%)
Europe: 6% (7.45%)
Latin America: 3% (4.49%)
Africa, Middle East, South Asia: 6% (11.40%)
Asia Pacific, Australia, Asia Pacific, Australia, New Zealand, China region: -1% (compared to 2.92%)
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This story has been updated.
Brooke DiPalma is a senior reporter at Yahoo Finance. Follow her at @Xbrooke di palma Or email bdipalma@yahoofinance.com.
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