PepsiCo has recently revised its annual forecast for organic revenue downward, citing a series of challenges that have hampered its sales performance in the last couple of quarters. The announcement, made by CEO Ramon Laguarta, underscores the increasingly tough macroeconomic conditions affecting the food and beverage industry. Following two successive quarters of underperformance, PepsiCo now anticipates a modest increase in organic revenue for 2024—projecting a low-single-digit rise instead of the previously expected 4%. Despite this bleak outlook, the company has maintained its forecast for core constant currency earnings per share, predicting an increase of at least 8% in this metric.
This shift in financial expectations has caused a slight dip in the company’s stock, which fell by 1% in premarket trading. With a reported third-quarter net income of $2.93 billion, which translates to $2.13 per share—down from $3.09 billion, or $2.24 per share the previous year—it is evident that PepsiCo is grappling with a significant slowdown in sales.
In the most recent quarter, PepsiCo’s revenue came in at $23.32 billion, slightly below Wall Street expectations of $23.76 billion. The adjustment in earnings per share also reflects a slight outperformance, as the adjusted earnings of $2.31 per share were marginally higher than the anticipated $2.29. However, the backdrop of a 0.6% decline in net sales highlights broader issues impacting the brand. Organic revenue, which adjusts for foreign exchange fluctuations and acquisitions, showed a modest growth of 1.3%, a figure that is concerning given the historical performance of the company.
One of the primary reasons for the disappointing sales performance is the reported decline in volume across both the food and beverage divisions of the company. PepsiCo’s food segment, particularly Quaker Foods North America, recorded the steepest decreases. There was a staggering 13% volume drop, primarily attributed to the complications stemming from recent product recalls for potential salmonella contamination, starting in December and extending into the following months. The company’s decision to close a plant related to these recalls indicates a substantial operational disruption.
Frito-Lay North America, another crucial division within PepsiCo, experienced a 1.5% decline in volume. Here, the company is strategizing to provide greater value and enhance the in-store availability of products. This being the case, the overall snack category has faltered in comparison to historical figures, with PepsiCo’s executives acknowledging that salty and savory snacks have notably underperformed year-to-date.
Furthermore, the softening demand extends beyond domestic markets. Notably, PepsiCo’s North American beverage sector also reported a troubling 3% drop in volume. Despite the challenges, brands like Gatorade and Pepsi itself have seen isolated revenue growth, suggesting that while the brand portfolio is varied, overall consumer inclination has shifted. In international markets such as Latin America and parts of Africa and the Middle East, PepsiCo similarly reported declining volumes for both food and beverages, reinforcing the notion that this is not merely a localized downturn.
The changing behavior of consumers has become an essential point of focus for PepsiCo. Observing a shift in purchasing patterns across various income brackets, executives warned that buyers are actively opting for products perceived as offering greater value. This development may require the company to reassess its marketing strategies and product offerings to better align with consumer expectations in a rapidly changing retail environment.
As PepsiCo navigates through these turbulent waters, it faces the dual challenge of recovering from operational disruptions while also responding proactively to shifting consumer sentiments. The company’s ability to adapt and innovate in response to these demands will be crucial for its recovery and future growth. With a cautious but hopeful outlook for the next fiscal year, PepsiCo has an opportunity to re-engage its customer base and potentially charts a course towards a more resilient economic performance in the changing landscape of consumer behavior.