PepsiCo, one of the leading food and beverage giants, has recently reported mixed quarterly results, with a decline in North American demand for its products. This news has caused a drop in the company’s shares by more than 2% in premarket trading. Let’s take a closer look at the numbers and factors contributing to this decline.
Earnings per share came in at $1.78 adjusted, slightly higher than the expected $1.72. However, revenue fell short of expectations, with $27.85 billion compared to the estimated $28.4 billion. Despite the mixed results, PepsiCo reported a significant increase in net income for the fourth quarter, reaching $1.3 billion, or 94 cents per share, compared to $518 million, or 37 cents per share, in the previous year.
The decline in revenue can be attributed to various factors. Net sales dropped by 0.5%, marking the first quarter since 2020 that the company experienced a decline in quarterly revenue compared to the same period the previous year. Currency exchange rates also played a role, dragging net sales down by 1.5%. However, PepsiCo’s organic revenue, excluding acquisitions and divestitures, saw a positive growth of 4.5% in the quarter, thanks to higher prices.
Unfortunately, these raised prices have had a negative impact on consumer demand for PepsiCo’s food and drinks. The company’s volume, which accounts for pricing and currency changes, has continued to decline this quarter. PepsiCo executives explained that high borrowing costs and lower personal savings have squeezed consumers’ budgets, particularly in North America. Additionally, consumers are increasingly opting for smaller pack sizes due to convenience and affordability.
The North American Quaker Foods division of PepsiCo reported an 8% decline in volume. This decrease can be attributed to a voluntary recall of granola bars and cereals, as well as weaker growth in the overall category. Frito-Lay North America, which includes popular brands like Cheetos and Doritos, also experienced a 2% drop in volume. Furthermore, the North American beverage unit saw a significant decline of 6% in volume.
Looking ahead to 2024, PepsiCo expects organic revenue growth of at least 4% and core constant currency earnings per share growth of at least 8%. This forecast is slightly lower than their previous expectations of organic revenue growth on the high end of 4% to 6% and core constant currency earnings per share growth in the high single digits. PepsiCo executives anticipate a weaker first half of the year due to product recalls affecting their North American Quaker Oats business and international conflicts impacting sales in certain regions. However, they remain optimistic about international organic revenue growth surpassing that of North America for the full year.
In conclusion, PepsiCo’s mixed quarterly results reflect a decline in North American demand for its food and drinks. The company’s decision to raise prices has negatively impacted consumer demand, leading to a decrease in volume. Despite these challenges, PepsiCo remains focused on organic revenue growth and aims to navigate through the obstacles in the coming year.