On Thursday, PepsiCo missed expectations for second-quarter revenue as a series of price hikes and competition from private-label brands slowed sales of its snacks and soda, particularly in the United States, its largest market.
Analysts have noted that product prices, which are beginning to normalize after nearly two years of multiple hikes, remain higher than pre-pandemic levels. This leaves packaged-food companies like PepsiCo with little room to raise prices further as sales volumes shrink.
For the quarter ending June 15, PepsiCo increased average product prices by 5%, consistent with the first quarter. However, overall organic volumes slipped by 3% during the period.
Company executives reported that year-to-date performance across many food categories, including snacks, was subdued as consumers became more value-conscious.
“Throughout, we are seeing much more price sensitivity and consumers looking for more value across all income groups. Now that is something that we have to take into consideration,” PepsiCo CEO Ramon Laguarta told Reuters. He also mentioned that the company has been enhancing productivity and cannot continue to raise prices.
To cater to varying consumer preferences, PepsiCo is adding new flavors to its brands like Lay’s, Doritos, and Cheetos while also offering products across different price tiers. “We have to put much more focus on our efficiency,” Laguarta said.
Frito-Lay North America, PepsiCo’s snacking business and its second largest division, saw volumes drop by 4%, while the North America beverages division, its largest, experienced a 3.5% decline.
Shares of the company fell as much as 3.4%, hitting a nine-month low of $158.03, after PepsiCo adjusted its fiscal 2024 organic revenue growth expectation to about 4%, down from prior expectations of at least 4%.
“They are on the lower side of projections here, they’re seeing the weakness, and we’ve been talking about that for several quarters now, and that seems to be ongoing,” said Don Nesbitt, senior portfolio manager at F/m Investments.
Despite these challenges, easing production and other expenses from pandemic peaks, along with the impact of price hikes, helped PepsiCo post an adjusted profit of $2.28 per share, beating LSEG estimates of $2.16. The company’s revenue rose 0.8% to $22.50 billion for the quarter, while analysts had estimated $22.57 billion.
“It’s not a business to sit on its hands and there is a clear focus on profitable growth, so PepsiCo is going to have to pull various levers depending on products to try and stay on top,” said Dan Coatsworth, investment analyst at AJ Bell.
