PepsiCo reported higher-than-expected earnings for the second quarter of 2024, but noted a drop in consumer purchases of its snacks and drinks after two years of consistent price hikes.
The company revealed that North American demand for its Frito-Lay snacks was “subdued,” with sales volumes dropping 4%. CEO Ramon Laguarta highlighted that customers across all income levels are either cutting back on snack purchases or opting for cheaper store brands.
“In the U.S., there is clearly a consumer that is more challenged,” Laguarta said during an investor call. “They want more value to stay with our brands.”
The price of a 16-ounce bag of potato chips in the U.S. hit $6.63 in May, reflecting an 18% increase over the past two years, according to data from the U.S. Federal Reserve.
To address this issue, PepsiCo plans to ramp up deals and advertising in the second half of the year. Prices for some products, such as plain potato chips and tortilla chips, may be reduced. For other products, the company aims to emphasize their value through more visible in-store promotions and boost sales of its healthier brands like PopCorners, Smartfood, and SunChips, which are growing faster than the rest of its portfolio.
“There’s different tools that we’ll be using to drive the category growth,” Laguarta added.
North American beverage sales volumes also fell by 3% during the quarter. Laguarta noted a decline in demand for energy drinks like Rockstar, with consumers opting for more hydrating beverages like Gatorade due to hot weather.
Financial Performance and Strategic Adjustments
PepsiCo reported a 12% increase in net income to $3 billion, or an adjusted $2.28 per share, for the April-June period, exceeding Wall Street’s expectation of $2.16 per share according to FactSet. The company attributed the earnings boost to its ongoing efficiency drive, including waste reduction and increased automation in its plants.
Revenue grew by less than 1% to $22.5 billion, slightly below analysts’ forecast of $22.59 billion. Organic revenue, which adjusts for foreign currency exchanges and the impact of product acquisitions or divestments, rose by 1.9% for the quarter. PepsiCo now anticipates 4% organic revenue growth for the full year, an increase from its previous forecast of “at least” 4%.
Despite the positive earnings report, PepsiCo shares slipped 2%.
Global Market Dynamics and Future Outlook
Laguarta expressed confidence in achieving the 4% organic revenue growth target, citing robust growth in international markets like India and Europe. He also expects a gradual recovery for PepsiCo’s Quaker Foods, which saw an 18% revenue drop in the April-June period due to product recalls earlier this year.
Globally, sales volumes declined by 3% in the second quarter, marking the company’s eighth consecutive quarter of falling volumes. PepsiCo has indicated that some of this decline is intentional, as it has been reducing package sizes.
Based in Purchase, New York, PepsiCo has relied heavily on price increases over the past two years due to rising costs for ingredients and packaging. The fourth quarter of 2023 marked the company’s eighth straight quarter of double-digit percentage price hikes. PepsiCo raised prices by 5% at the beginning of the year and another 5% in the most recent quarter.
“There is some value to be given back to consumers after three or four years of a lot of inflation,” Laguarta said.
