PepsiCo earnings: Company cuts 2024 guidance as North America sales lag expectations

Updated Tue, Oct 8, 2024, 2:28 PM 5 min read

PepsiCo navigates 'very challenged' consumer

For the rest of the year, PepsiCo will "continue to invest in commercial activities and brand support to stimulate consumer demand," chairman and CEO Ramon Laguarta said in the release.

Laguarta added that Pepsi's performance in the fiscal third quarter was impacted by "subdued category performance trends in North America," the impact of recalls at Quaker Foods North America, and business disruptions from "rising geopolitical tensions in certain international markets."

Laguarta pointed out some markets were "growing nicely," such as Southeast Asia, India, Brazil, and parts of Eastern Europe. However, that was offset by a deceleration in other markets, such as China, "where consumers are feeling a bit more constrained."

In a phone interview with Yahoo Finance, Laguarta said consumers are "very challenged" and that they are making a "lot of trade-offs" when it comes to food. Those trade-offs are weighing on the snacks business most acutely, Laguarta explained.

All three of PepsiCo's North American segments fell below expectations, including Frito-Lay, Quaker Foods, and PepsiCo Beverages, as they look to combat pushback from consumers against higher prices at the grocery store.

In a statement, the company said it had made investments to offer "more value to consumers" through a variety of pack sizes and enhance "in-store availability and presence," which helped improve the volume performance trend. Its snack business, Frito-Lay, saw volume decline 1.5% in the quarter, compared to expectations of 1.81%.

The company added 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," which has resulted in its salty and savory snack business underperforming year to date.

Citi analyst Filippo Falorni said that's been the "big issue" for the company. "When you look at the cumulative pricing that was taken over the last three years, it's about 40% higher pricing in snacks compared to essentially 2021," Falorni said. Pepsi's pricing of snacks was far higher than the 25% to 30% increase in other categories like cookies, crackers, and meals.

Pepsi CFO James Caulfield called pricing "complex" on the call with investors.

"We're investing in affordability where it makes sense," Caulfield said. "But we're investing in a number of levers to stimulate demand ... [It's] too soon to call on what the pricing outlook is going forward."

Pepsi also said it's doubling down on what it calls "positive choices" with its healthier alternative brands, such as SunChips, Stacy’s, and PopCorners.

Following the end of Q3, the company also announced plans to acquire the Mexican-American meal and snack brand Siete Foods for $1.2 billion.

Falorni noted that Siete's connection to its Hispanic heritage "caters to ... a faster-growing part of the US population," adding that expansion will be key for PepsiCo. The brand's sales growth is between 30% and 40% on a year-over-year basis.

"There's a big opportunity for Pepsi to expand it within the US," Falorni added. "That's going to be the focus, I expect, in the near-term, and then maybe longer term after a couple of years, [Pepsi will] potentially bring it internationally."