PepsiCo Revamps Lays, Cheetos, And Doritos Maker Frito Lay As North American Sales Take A Hit, Shifts Focus To Health-Conscious Customers

PepsiCo Inc. PEP reported a mixed fourth quarter, missing revenue while beating earnings per share estimates. The management highlighted key strategic changes to its snack business Frito-Lay North America, which manufactures popular products like Lays, Cheetos, and Doritos.

What Happened: Frito-Lay North America (FLNA) experienced a decline in organic revenue for both the full year 2024 and the fourth quarter. Full-year organic revenue decreased by 0.5%, a significant drop from the 9% growth seen in 2023. In the fourth quarter alone, organic revenue was down 2%.

PepsiCo reinvested heavily in FLNA in Q4, funded partly by one-time gains, to revitalize volume growth. This included tactical spending and strategic groundwork for 2025.

The chairman and CEO of the company, Ramon Luis Laguarta in response to an analyst during its earnings call said, “We reinvested most of the one-time gains in building the infrastructure to capture those opportunities in 25.”

The management also highlighted that FLNA is emphasizing value offerings at different price points and pack sizes. This is alongside healthier options like products with lower sodium, and fat, better ingredients, and plant-based items. The management is addressing consumer preferences for “positive choices” and “permissible offerings.”

PepsiCo Beverages North America organic revenue increased 1% in 2024, which compares to 7% organic revenue growth in the prior year, whereas, Quaker Foods North America organic revenue declined 14 percent in 2024.

Why It Matters: Laguarta said, “I think there’s a higher level of awareness in general of American consumers toward health and wellness, driven by conversations around obesity drugs, and other health-related topics. This increased awareness is influencing consumer behavior, which PepsiCo is addressing through its strategies”.

Fourth-quarter sales fell slightly short of expectations, decreasing 0.2% year-over-year to $27.78 billion compared to the projected $27.89 billion. However, adjusted EPS of $1.96 beat the $1.94 consensus.

For the next full year, PepsiCo projects low single-digit organic sales growth for 2025, anticipating a gradual improvement in North America. They reaffirmed their long-term targets of 4-6% organic sales growth and high single-digit EPS growth.

Restructuring efforts aim to boost international growth and North American efficiency, the management highlighted. PepsiCo also said that it is mindful of macroeconomic uncertainties and evolving consumer behavior, including the potential impact of weight loss drugs, though no direct impact has been observed.

Price Action: Shares of PepsiCo fell 4.51% to end Tuesday at $143.49 apiece. It rose by 0.49% in after-hours. The exchange-traded fund tracking the S&P 500 index, SPDR S&P 500 ETF Trust SPY rose 0.67% to $601.78 on Tuesday.

The average price target among 20 analysts tracked by Benzinga is $178.35 with a ‘hold' rating. The estimates range from $155 to $200 apiece. Recent ratings from RBC Capital, JP Morgan, and Deutsche Bank suggest a $171.67 target, implying a potential upside of 19.05%.