PepsiCo reported weaker-than-expected sales in its second straight quarter, leading to a lowered full-year outlook for organic revenue. CEO Ramon Laguarta cited the repercussions of Quaker Foods North America recalls, weakening demand in the U.S., and business disruptions in international markets as factors influencing the company’s performance. The company now expects a low-single-digit rise in organic revenue for 2024, down from its previous forecast of 4% growth. However, PepsiCo reiterated its forecast for at least 8% growth in core constant currency earnings per share. Shares of the company fell by 1% in premarket trading.
In the third quarter, PepsiCo reported earnings per share of $2.31 adjusted, compared to the expected $2.29. However, revenue was slightly lower than expectations at $23.32 billion, compared to an expected $23.76 billion. Net income attributable to the company declined to $2.93 billion, or $2.13 per share, from $3.09 billion, or $2.24 per share, in the previous year. Excluding items, the company earned $2.31 per share, while net sales fell by 0.6% to $23.32 billion. Organic revenue, which excludes acquisitions, divestitures, and currency changes, rose by 1.3% in the quarter.
Demand for both Pepsi’s snacks and drinks decreased this quarter, with volume for both divisions dropping by 2%. Quaker Foods North America experienced the most significant decline in volume at 13%, partly due to recalls for potential salmonella contamination in December and January. PepsiCo officially closed down a plant linked to the recalls in June, though production had already ceased. However, the consequences of the recalls are now improving, according to Laguarta and CFO Jamie Caulfield. Frito-Lay North America reported a 1.5% decline in volume, but the company is working on offering more value to consumers and improving in-store availability with its snacks.
PepsiCo’s North American beverage business saw a 3% decline in volume, although brands like Gatorade and Pepsi experienced revenue growth in the quarter. The Latin America and Africa, Middle East, and South Asia markets also reported reductions in volume for both food and beverages. Despite efforts to boost performance, the company is facing challenges in various regions. PepsiCo executives noted that after outperforming in previous years, salty and savory snacks have underperformed year-to-date in the broader category. While volume for Frito-Lay North America is gradually improving, it is not performing as well as in the past.
Overall, PepsiCo’s performance in the quarter was impacted by various factors, such as recalls, weakening demand, and disruptions in international markets. The company’s lowered outlook for organic revenue reflects these challenges, as well as a shift in consumer behavior across different income levels. While efforts are being made to address these issues and improve performance, the company continues to face headwinds in key markets. Despite the setbacks, PepsiCo remains focused on delivering value to consumers and driving long-term growth in its business segments.
