By Ananya Mariam Rajesh and Jessica DiNapoli
(Reuters) – PepsiCo missed second-quarter revenue expectations on Thursday as a series of price hikes and private label competition slowed sales of its snacks and soft drinks, mainly in the United States, its largest market.
Analysts have said commodity prices, which are beginning to normalize after nearly two years of multiple increases, remain higher than pre-pandemic levels, giving packaged food companies like PepsiCo little room to raise prices as volumes shrink.
PepsiCo raised average prices of its products by 5% during the quarter ended June 15, in line with the first quarter. However, overall organic volumes fell 3% in the reported period.
Company executives said year-to-date performance in many food categories, including snacks, was subdued as consumers became more value-conscious when spending.
“We are seeing increased price sensitivity and consumers seeking more value across all income groups. That's something we have to take into account,” PepsiCo (NASDAQ:) Chief Executive Officer Ramon Laguarta told Reuters.
He also said the company had been increasing productivity and could not continue raising prices.
PepsiCo is adding new flavors to its brands like Lay's, Doritos and Cheetos to suit different consumer preferences while offering products at different price points.
“We have to put much more focus on our efficiency,” Laguarta said.
Frito-Lay North America, the company's snack business and second-largest, saw volumes fall 4%, while its North American beverage division, its largest, saw a 3.5% decline.
The company's shares fell as much as 3.4% to a nine-month low of $158.03 after PepsiCo also said it expected fiscal 2024 organic revenue to be about 4%, compared with prior expectations of at least 4%.
“They're on the lower side of projections here, they're seeing weakness here and we've been talking about that for several quarters and that appears to continue,” said Don Nesbitt, senior portfolio manager at F/m Investments.
Still, reduced production and other expenses since the peak of the pandemic, along with the impact of price increases, helped PepsiCo post an adjusted profit of $2.28 per share, beating LSEG's estimate of $2.16.
The company's revenue rose 0.8% to $22.5 billion in the quarter, compared with analysts' estimates of $22.57 billion.
“It's not a business to sit back and there is a clear focus on profitable growth, so PepsiCo will have to pull a number of levers depending on the product to try and stay on top,” said Dan Coatsworth, investment analyst at AJ Bell.
!function(f,b,e,v,n,t,s){if(f.fbq)return;n=f.fbq=function(){n.callMethod? n.callMethod.apply(n,arguments):n.queue.push(arguments)};if(!f._fbq)f._fbq=n;n.push=n;n.loaded=!0;n.version=’2.0′;n.queue=();t=b.createElement(e);t.async=!0;t.src=v;s=b.getElementsByTagName(e)(0);s.parentNode.insertBefore(t,s)}(window, document,’script’,’https://connect.facebook.net/en_US/fbevents.js’);
