PepsiCo beats revenue forecasts as price increases moderate

PEPSICO REPORTED better-thanexpected revenue in the first quarter on strong international demand for its snacks and beverages.

The Purchase, New York-based company said revenue rose two per cent to US$18.3 billion for the January-April period. That was higher than the US$18 billion

Wall Street forecast, according analysts polled by FactSet. Pepsi reaffirmed its financial guidance for 2024, including to organic revenue growth of four per cent. The company has said it expects to return to more normal rates of growth this year after several years of inflation-driven price increases.

That may have disappointed investors who have grown used to stronger growth at PepsiCo. Last year organic revenue grew 9.5 per cent, for example. PepsiCo’s shares fell more than 2.5 per cent in morning trading Tuesday.

In North America Frito-Lay revenue rose two per cent while Pepsi beverage sales were up 1 per cent. Sales were hurt by a recall early in the quarter of Quaker Oats cereal, bars and snacks because of potential contamination with salmonella. Quaker Foods sales dropped 24 per cent during the quarter.

But the company saw 11 per cent sales growth in Asia Pacific and 10 per cent sales growth in Europe.

PepsiCo Chairman and CEO Ramon Laguarta said the company is optimistic that consumer demand will continue to rise this year in the United States and elsewhere.

“The consumer, globally, we think is very resilient,” Laguarta said during a conference call with investors. “It’s basically supported by two facts: very low unemployment or quite low unemployment globally and wages growing at a good pace in the majority of the countries where we participate.”

PRICING DISPUTE

In Europe, sales were driven by demand in Eastern Europe, Laguarta said. In Western Europe, consumers saw fewer PepsiCo snacks and drinks on grocery shelves during the quarter. Carrefour, one of Europe’s largest supermarket chains, announced in January that it was pulling PepsiCo products from stores in France, Belgium, Spain and Italy due to unacceptable price increases. The two companies resolved their pricing dispute and Carrefour began restocking PepsiCo products in early April.

The company said it also saw double-digit organic revenue growth in Mexico, Brazil, Egypt, Pakistan, China and Australia.

But Laguarta added a note of caution. Consumer spending in China remains cautious, he said, and PepsiCo is also keeping a close eye on lower-income consumers in the US, who are buying fewer snacks or switching to store brands in the face of higher prices.

“The lower-income consumer in the US is stretched,” he said. “That’s a consumer that we are emphasizing in our commercial programs and we are learning how best to keep that consumer in our categories.”

PepsiCo has leaned heavily into price increases over the past two years to combat higher ingredient costs. The fourth quarter of 2023 was the company’s eighth straight quarter of double-digit percentage price increases.

Those increases moderated in the first quarter. PepsiCo said net pricing was up five per cent globally during the quarter, while volumes fell two per cent. PepsiCo has said some of that volume decline is strategic. The company has been shrinking package sizes to meet consumer demand for convenience and portion control.

PepsiCo said its net earnings rose 5.6 per cent to US$2 billion in the first quarter. Excluding special items, the company earned US$1.61 per share. That beat Wall Street’s forecast of US$1.52.