PepsiCo Lowers 2024 Sales Outlook Amid Inflation and Higher Costs

PepsiCo (NASDAQ:PEP) has adjusted its 2024 sales outlook following a weak third-quarter performance in both North American and international markets.

The company now anticipates a low single-digit increase in organic revenue growth, falling short of its earlier 4% growth estimate. Shares dipped around 1% in premarket trading after the news broke, reflecting concerns about the company's revised expectations.

Weaker Sales Performance

PepsiCo's third-quarter results were mixed. Earnings per share (EPS) slightly beat expectations at $2.31, compared to the $2.30 predicted by analysts. However, revenue missed the mark, coming in at $23.3 billion versus the anticipated $23.8 billion. Organic revenue growth also disappointed, showing a mere 1.3% increase, far below the expected 3%.

In North America, all major segments underperformed. Frito-Lay, one of PepsiCo's flagship brands, posted a 1% growth rate, which was still better than analysts' expectations of flat growth. Quaker Foods, however, saw a sharp decline, with a 13% drop in sales compared to the expected 10.44% fall. PepsiCo Beverages posted a modest 1% increase, below the 1.86% forecasted.

External Pressures Weigh Heavily

PepsiCo attributes these results to inflation, rising borrowing costs, and consumer pushback against higher prices. In particular, the company’s snack division, which includes well-known brands like Frito-Lay, has struggled.

Consumers have shown reluctance to pay higher grocery prices for salty snacks, and the company’s response has been to focus on offering more value and increasing the availability of its products in stores.

Investing in Healthier Alternatives

In light of these challenges, PepsiCo is ramping up its "positive choices" initiative, focusing on healthier brands such as SunChips, Stacy's, and PopCorners. Additionally, the company recently acquired Siete Foods, a popular Mexican-American meal and snack brand, for $1.2 billion. This acquisition is part of PepsiCo’s broader strategy to diversify its portfolio and appeal to health-conscious consumers.

Profitability Still a Bright Spot

Despite revenue shortfalls, PepsiCo reiterated its expectation of at least 8% growth in core constant currency EPS for 2024. According to Jefferies analyst Kaumil Gajrawala, this is impressive, especially considering the 12% growth the company achieved last year. He noted that the company’s strong margin performance and productivity efforts helped offset some of the sales weakness.

PepsiCo's CEO, Ramon Laguarta, acknowledged the tough conditions but remained optimistic. He highlighted continued investments in brand support and commercial activities aimed at stimulating consumer demand through the end of the year.