(Bloomberg) — PepsiCo Inc . reported weaker-than-expected revenue growth as its snack food business was hurt by increasingly budget-focused shoppers and a recent Quaker Foods withdrawal.
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The maker of Doritos chips and Mountain Dew soda said Thursday that organic revenue rose 1.9% in the second quarter, missing the 2.9% average estimate of analysts polled by Bloomberg. The volume of food products sold in the period fell 2% from a year earlier, including larger declines for the Frito-Lay and Quaker Foods businesses in North America.
After years of price hikes and sales growth, PepsiCo’s US business is struggling. Ongoing inflation has forced many shoppers to cut back on spending and switch to cheaper supermarket brands. The savory category has been particularly weak as consumers focus more on nutrition and affordability.
“In the US, there is clearly a consumer that is more challenged,” Chief Executive Ramon Laguarta said on the company’s earnings call. He added that the pressures on Frito-Lay are “a value issue, not an issue of anything else” and that weight-loss drugs have not had an impact so far.
PepsiCo shares fell 3.4%, touching their lowest intraday price since October. The stock has fallen 13% over the past 12 months, compared with a 7% gain in the S&P 500 Consumer Staples Index and a 5.9% gain in rival Coca-Cola Co. shares.
In North America, PepsiCo’s volumes fell in both food and beverages. The company remains impacted by the major recall of Quaker Oats cereals, bars and snacks that began late last year. Volume fell 17% in the Quaker Foods division from a year ago.
Internationally, PepsiCo fared better with organic sales across the board, which excludes the impact of acquisitions. Organic revenue in Latin America and Asia Pacific rose 2% and 1%, respectively, but missed analysts’ estimates as food volumes shrank.
India was described by Laguarta as a “huge growth area”, and even in China, where consumers are saving more than they are spending, he sees opportunities for the company’s relatively inexpensive products.
To win back consumers, PepsiCo will focus “surgically” on promotions by ramping up several advertising and marketing initiatives, Laguarta said in a statement. The company said it expects consumers to remain budget-conscious and overall category growth to moderate. It also plans to improve productivity with more digitization and simplification of the company, Laguarta told analysts.
“The group will need to lean on cost-cutting and productivity initiatives in order to offset some of the impact of lower volumes and keep profit targets on track in the short term,” said Aarin Chiekrie, an analyst. of equity in Hargreaves Lansdown.
Conagra Brands Inc also highlighted lower consumption trends and productivity initiatives in its earnings release on Thursday. Other packaged food manufacturers such as General Mills Inc. and Kraft Heinz Co. have also focused on productivity as a way to improve margins in the face of sluggish sales growth.
Food is an increasingly large part of PepsiCo’s business, accounting for 59% of global revenue in 2023.
New York-based Purchase reiterated most aspects of its full-year forecast, except that it now targets organic revenue growth of 4% for the year compared with “at least 4%” previously.
Basic earnings per share were $2.28 for the quarter, beating the average analyst estimate of $2.15. The company hasn’t missed quarterly profit estimates in more than 10 years, according to data compiled by Bloomberg.
(Updates with details from the earnings call throughout. An earlier version of this story corrected the metric in the headline.)
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