PepsiCo's Latest Report Shows Snacking Was Off The Table

Kicking off this fall’s consumer-oriented earnings reports, PepsiCo Inc PEP reported a mixed quarterly report as snacking in North America weakened. 

Fiscal Third Quarter Highlights

The repercussions of the Quaker Foods North America recalls, softer U.S. demand and business disruptions in international markets dragged down sales that fell 0.6%  to $23.32 billion, below LSEG’s consensus estimate of $23.76 billion. But taking out acquisitions, divestitures and currency changes, organic revenue grew 1.3%. 

Net income attributable to the company amounted to $2.93 billion, or $2.13 per share. Adjusted earnings per share amounted to $2.31, which topped LSEG’s estimate of $2.29 per share.

Slower than expected recovery of the U.S. consumer. 

During the quarter, demand for Pepsi’s snacks and drinks weakened. Volume for both the food and beverage divisions contracted by 2%. CFO Jamie Caulfield noted that consumer recovery in the U.S. was slower than anticipated, following CEO Ramon Laguarta’s comment from July about a more challenged consumer as Pepsi executives observed changed consumer behavior across all income levels. Quaker Foods North America reported the biggest drop of 13%.

Frito-Lay North America also reported a volume decline of 1.5%. The division’s volume is improving sequentially with Pepsi making efforts to offer more value to its consumers.

Volume for Pepsi’s North American beverage business fell 3% although brands like Pepsi and Gatorade posted revenue growth in the quarter. Shrinking volume on both food and drink fronts was also the case for Latin America and Africa, Middle East and South Asia markets.

Outlook

For the second quarter in a row, PepsiCo lowered its full-year organic sales forecast as it guided for a low-single-digit growth of approximately 4%, down from its prior growth estimate of at least 4%.

Supported by the football season, Pepsi plans to invest more in Doritos and Tostitos over this fall and winter by offering bonus packs and therefore, more value to its consumers.

To appeal to more health-conscious consumers, Pepsi is also broadening its portfolio. Last week, Pepsi revealed it purchased Siete Foods for $1.2 billion, adding Mexican-American food with accommodations for different dietary concerns to its offerings.

All in all, the food and beverage giant surpassed Wall Street estimates with earnings but fell short on revenue, while lowering its full-year outlook for organic revenue. On a brighter note, consequences of the recalls are now diminishing.

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