PepsiCo earnings beat estimates but product recalls, weaker lower-income consumer hurt U.S. sales

PepsiCo
on
Tuesday

reported
quarterly earnings and
revenue
that
beat
analysts’
expectations,
despite
weaker
U.S.
demand
caused
by
Quaker
Oats
recalls
and
backlash
to
higher
prices
for
its
drinks
and
snacks.

Shares
of
the
company
fell
more
than
2%
in
morning
trading.

Here’s
what
the
company
reported
compared
with
what
Wall
Street
was
expecting,
based
on
a
survey
of
analysts
by
LSEG:

• Earnings per
  share:
  $1.61 adjusted
  vs.
  $1.52
  expected
• Revenue:
  $18.25
  billion
  vs.
  $18.07
  billion
  expected

Pepsi
reported
first-quarter
net
income
attributable
to
the
company
of
$2.04
billion,
or
$1.48
per
share,
up
from
$1.93
billion,
or
$1.40
per
share,
a
year
earlier.

Excluding
items,
Pepsi
earned
$1.61
per
share.

Net
sales rose 2.3%
to
$18.25
billion.
The
company’s
organic
revenue,
which
excludes
acquisitions,
divestitures
and
foreign
exchange,
increased
2.7%
in
the
quarter.

But
the
company’s
volume
is
still
under
pressure.
Pepsi,
along
with
many
of
its
rivals,
has
seen
its
volume
fall
in
response
to
higher
prices
for
its
Gatorade,
Fritos
and
other
products
in
its
portfolio.

The
company’s
food
division
saw
its
volume
decrease
0.5%,
while
its
beverage
segment
reported
flat
volume.
The
metric
strips
out
pricing
and
currency
changes
to
reflect
demand.

A
recall
of
many
Quaker
Foods
cereals
and
bars
only
worsened
Pepsi’s
volume
problem.
The
company
issued
the
first
recall
for
potential
salmonella
contamination
in
December,
then
widened
it
in

January.
The
North
American
Quaker
Food
division
reported
that
its
volume
cratered
22%
in
the
quarter.
The
Quaker
Foods
recall
dented
Pepsi’s
organic
volume
by
roughly
1%.

Pepsi
will
officially
close
a
Quaker
Oats
plant
tied
to
the
recalls
in
June,
although
production
there
has
already
ceased.
Pepsi
said
the
company
has
resumed
limited
production
of
certain
products
affected
by
the
recalls.

Pepsi’s
other
North
American
divisions
also
reported
weaker
volume.
Volume
in
its
beverage
unit
fell
5%
in
the
quarter,
while
Frito-Lay
North
America
reported
a
2%
decline
in
its
volume.

Frito-Lay
North
America’s
effective
net
pricing
was
up
3%
in
the
quarter,
while
Pepsi’s
domestic
beverages
unit’s
prices
rose
6%.

In
the
U.S.,
lower-income
consumers
are
still
trying
to
stretch
their
paychecks,
Pepsi
CEO
Ramon
Laguarta
told
analysts
on
the
company’s
conference
call.
Pepsi
is
trying
to
target
the
demographic
and
keep
them
as
customers,
particularly
for
its
snacks
like
Cheetos.

Outside
of
the
U.S.,
demand
was
stronger.
Its
Asia-Pacific,
Australia,
New
Zealand
and
China
region
reported
12%
volume
growth
for
snacks.
Chinese
consumers
are
cautious
and
saving
more
money,
but
they’re
still
buying
more
Pepsi
products,
according
to
Laguarta.
Even
in
Europe,
which
has
also
struggled
with
higher
grocery
prices,
beverage
volume
increased
7%
and
snack
volume
rose
2%.

Pepsi
also
reiterated
its
2024
outlook.
For
the
full
year,
the
company
is
expecting
organic
revenue will
rise at
least
4%
and
core
constant
currency
earnings
per
share will
climb
at
least 8%.

“As
we
look
ahead,
we
continue
to
expect
a
normalization
and
moderation
in
category
growth
rates
versus
the
last
few
years,”
Pepsi
executives
said
in
prepared
remarks. “We
also
continue
to
expect
that
consumers
will
remain
watchful
with
their
budgets
and
choiceful
with
their
purchases.”