PepsiCo reported higher-than-expected earnings in the second quarter but acknowledged that after raising prices every quarter for more than two years, customers are not buying as many of its snacks and drinks.
PepsiCo said Thursday that North American demand for its Frito-Lay snacks was “subdued” during the quarter and sales volumes dropped 4%. Chairman and CEO Ramon Laguarta said the company is seeing customers of all income levels pull back on snack purchases or shift to cheaper store brands.
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“In the U.S., there is clearly a consumer that is that is more challenged,” Laguarta said during a conference call with investors. “They want more value to stay with our brands.”
The average U.S. price for a 16-ounce bag of potato chips hit $6.63 in May, according to data from the U.S. Federal Reserve, up 18% from two years ago.
Laguarta said PepsiCo plans to amp up deals and advertising in the second half of this year. Prices for some products, like plain potato chips or tortilla chips, may be coming down. For other products, PepsiCo hopes to emphasize their value or invest in more visible in-store promotions. It also hopes to accelerate sales of its healthier brands — like PopCorners, Smartfood and SunChips — which have been growing at a faster pace than the rest of its portfolio.
“There’s different tools that we’ll be using to drive the category growth,” Laguarta said.
North American beverage sales volumes also fell 3% during the quarter. Laguarta said demand for energy drinks like Rockstar slowed during the quarter as the hot weather drove consumers to more hydrating drinks like Gatorade.
PepsiCo's income rose 12% to $3 billion, or an adjusted $2.28 per share, for the April-June period. Wall Street had expected earnings of $2.16 per share, according to FactSet. The company said it's continuing drive to operate more efficiently — including reducing waste and adding more automation to its plants — boosted earnings.
Revenue grew less than 1% to $22.5 billion. That was slightly lower than the $22.59 analysts forecast.
Organic revenue — which is adjusted for foreign currency exchanges and the impact of product acquisitions or divestments — rose 1.9% for the quarter. PepsiCo now expects 4% organic revenue growth for the full year; previously, the company had forecast organic revenue growth of “at least” 4%.
PepsiCo shares slipped 2%.
Laguarta said he's confident PepsiCo can reach the 4% target in part because of strong growth in some international markets, like India and Europe. He's also expecting a gradual recovery for PepsiCo's Quaker Foods, which was hurt by product recalls earlier this year. Quaker Foods revenue fell 18% in the April-June period.
Globally, sales volumes fell 3% in the second quarter. It was the company's eighth straight quarter of falling volumes. PepsiCo has said some of that volume decline is strategic, since it has been shrinking package sizes.
PepsiCo, based in Purchase, New York, has leaned heavily into price increases over the past two years as its costs for ingredients and packaging rose.
The fourth quarter of 2023 was the company’s eighth straight quarter of double-digit percentage price increases and it hiked prices 5% to start the year, and another 5% in the just-completed quarter.
“There is some value to be given back to consumers after three or four years of a lot of inflation,” Laguarta said.