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 USA, its largest market.
Analysts have said that product prices, which are starting to normalise 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. PepsiCo raised average product prices by 5% for the quarter ended June 15, in line with the first quarter. However, overall organic volumes slipped 3% in the reported period.
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,” Pepsico CEO Ramon Laguarta said.
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 4% while the North America beverages division, its largest, saw a 3.5% decline. Shares of the company fell as much as 3.4% to a nine-month low of $158.03 after PepsiCo also said it expected fiscal 2024 organic revenue to be about 4%, compared with prior expectations of at least 4%.
“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.
