REUTERS — PepsiCo missed expectations for second-quarter revenue as a series of price hikes and competition from private-label brands slowed sales of its snacks and soda, mainly in the United States, its largest market.
Analysts have said that product prices, which are starting to normalize after nearly two years of multiple hikes, are still higher than pre-pandemic levels, giving packaged-food companies such as PepsiCo little room to raise prices as volumes shrink.
The company raised average product prices by five per cent for the quarter ended June 15, in line with the first quarter. However, overall organic volumes slipped three percent in the reported period.
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Company executives said year-to-date performance across many food categories, including snacks, was subdued as consumers had become more value-conscious while spending.
“Throughout, we are seeing much more price sensitivity and consumers looking for more value across all income groups. Now that is something that we have to take into consideration,” said Pepsico chief executive officer Ramon Laguarta.
He also said the company had been stepping up productivity and cannot continue to price up.
PepsiCo is adding new flavours to its brands such as Lay’s, Doritos and Cheetos to suit various consumer preferences, while also offering products across different price tiers.
“We have to put much more focus on our efficiency,” Laguarta said.
Frito-Lay North America, the company’s snacking business, which is also its second largest, saw volumes drop four per cent, while the North American beverages division, its largest, saw a 3.5 per cent decline.
Shares of the company fell after it also said it expected fiscal 2024 organic revenue to be about four per cent, compared with previous expectations of at least four per cent.
“They are on the lower side of projections here, they’re seeing the weakness here and we’ve been talking about that for several quarters now and that seems to be ongoing,” said Don Nesbitt, senior portfolio manager at F/m Investments.
Still, easing production and other expenses from the pandemic peak, along with the impact of price hikes, helped PepsiCo post an adjusted profit of $2.28 per share, beating estimates of $2.16.
The company’s revenue rose 0.8 per cent to $22.50 billion in the quarter, while analysts had estimated $22.57 billion.
“It’s not a business to sit on its hands and there is a clear focus on profitable growth, so PepsiCo is going to have to pull various levers, depending on products, to try and stay on top,” said Dan Coatsworth, investment analyst at AJ Bell.
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