PepsiCo recently reported mixed quarterly results, causing its shares to fall by more than 1% in early trading. The company cited declining demand in North America for its drinks and snacks as a major factor contributing to its disappointing performance. PepsiCo also narrowed its revenue outlook for the full year, now expecting organic revenue growth of only around 4%, compared to its previous forecast of at least 4%. This more cautious outlook reflects the company’s struggles to meet consumer demands in the U.S.
In the quarter ended June 15, PepsiCo posted second-quarter net income of $3.08 billion, or $2.23 per share, up from $2.75 billion, or $1.99 per share, a year earlier. While the company’s revenue of $22.5 billion exceeded Wall Street expectations, its organic revenue growth, which excludes acquisitions, divestitures, and currency changes, only increased by 1.9%. This growth was largely driven by Pepsi’s international business, as the company struggled in its home market due to product recalls and shrinking demand for its products.
PepsiCo executives noted that consumers have become more value-conscious, leading to a decline in volume for Frito-Lay North America and Pepsi’s North American beverage unit. Shoppers are increasingly opting for cheaper private-label options or buying fewer bags of chips in response to several years of price increases. This shift in consumer behavior has impacted shoppers across all income levels, forcing PepsiCo to adapt its strategies to attract thrifty consumers back to its products.
To address the challenges in its North American market, PepsiCo is focusing on higher-margin packaging and products, as well as in-store promotions for its flagship brands like Cheetos and Doritos. The company’s efforts to lure back shoppers appear to be working, as volume for Pepsi’s North American drinks has improved sequentially. PepsiCo is optimistic about the improvements in its performance, particularly after strong sales during the July 4 holiday. Additionally, the Quaker Foods North America division, which saw a 17% decline in volume due to recalls issued for potential salmonella contamination, is expected to show improvement in the second half of the year.
PepsiCo’s struggles in North America highlight the challenges facing the company as it seeks to navigate changing consumer preferences and economic conditions. The company’s focus on value-conscious shoppers and innovative marketing strategies will be crucial in driving future growth and regaining market share in its home market.