PepsiCo recently reported their quarterly earnings and revenue, surpassing analyst expectations in both categories. The company reported an earnings per share of $1.61 adjusted and revenue of $18.25 billion, compared to the expected $1.52 per share and $18.07 billion revenue. Despite the positive financial results, PepsiCo’s stock fell over 2% in morning trading. This is mostly due to weaker U.S. demand, which was impacted by Quaker Oats recalls and backlash to higher prices for their drinks and snacks.
The Quaker Oats recalls had a significant negative impact on PepsiCo’s volume in the first quarter. The recall, which was issued due to potential salmonella contamination, led to a 22% decrease in volume for the North American Quaker Food division. Additionally, the recall dented Pepsi’s organic volume by around 1%, showcasing the extent of the damage caused by the product recalls.
PepsiCo is facing volume pressure across its various divisions, particularly in response to higher prices for products like Gatorade and Fritos. The company’s food division saw a 0.5% decrease in volume, while the beverage segment reported flat volume. This decline in volume was further exacerbated by the recall of Quaker Foods products. As a response to declining volume, PepsiCo raised prices for its products, with Frito-Lay North America’s pricing up by 3% and Pepsi’s domestic beverages unit’s prices rising by 6%.
While PepsiCo experienced weaker volume in the U.S., the company saw stronger demand in other regions. In Asia-Pacific, Australia, New Zealand, and China, snack volume grew by 12%. Despite Chinese consumers being more cautious with their spending, they are still purchasing more Pepsi products, indicating a positive trend for the company in the region. Even in Europe, where grocery prices have been high, beverage volume increased by 7% and snack volume rose by 2%.
PepsiCo reiterated its outlook for 2024, expecting organic revenue to increase by at least 4% and core constant currency earnings per share to climb by at least 8%. The company is focused on targeting lower-income consumers in the U.S. to retain them as customers, particularly for snacks like Cheetos. Looking ahead, PepsiCo anticipates a normalization and moderation in category growth rates, as stated by company executives in their prepared remarks.
While PepsiCo’s quarterly earnings report exceeded expectations in earnings and revenue, the company faces challenges with volume pressure in the U.S. and product recalls impacting their performance. However, the strong demand in international markets and strategic pricing strategies suggest that PepsiCo is well-positioned for growth and success in the future.