PepsiCo lowers revenue forecast on ‘subdued’ sales

PepsiCo lowered its sales forecast for the year as consumers in the United States, China and elsewhere continued to pull back on buying its snacks and drinks.

The company, based in Purchase, New York, said on Tuesday it now expects its organic revenue to increase in the low single-digit range for the year. It had expected an increase of 4 per cent. Organic revenue is adjusted for foreign currency exchanges and the impact of product acquisitions or divestments. PepsiCo said its organic revenue rose 1.9 per cent in the first three quarters of this year.

PepsiCo said its third-quarter performance in North America was “subdued”, hurt by a big recall of its Quaker Oats granola bars and cereals, as well as weak demand for its Frito-Lay snacks and drinks.

Consumers began to push back on higher prices this summer after years of increases. PepsiCo’s price increases have even attracted notice from Congress. This week, Democratic Senator Elizabeth Warren of Massachusetts and Rep Madeleine Dean of Pennsylvania sent letters to PepsiCo, Coca-Cola and General Mills, accusing them of price gouging through shrinking package sizes.

PepsiCo Chairman and CEO Ramon Laguarta said on Tuesday that the company worked to make its Lay’s brand more affordable in the third quarter, adding product promotions, more chips per bag, and value packs.

Laguarta said Lay’s gained market share during the quarter, and now the company will expand those efforts to its Doritos and Tostitos brands. Frito-Lay prices edged up by just 0.5 per cent in the quarter, the company said.

Frito-Lay’s North American sales volumes slipped 1.5 per cent in the July-September period, although that was better than the 4.0 per cent drop they saw in the prior quarter.

“After three years of outsized growth for Frito-Lay, we knew this year was going to be a year of normalisation, and that’s what’s happened,” Laguarta said in a conference call with investors. “The consumer is reassessing patterns.”

North American beverage sales volumes fell three per cent in the quarter.

PepsiCo is still seeing strong growth in some markets, like India and Brazil, Laguarta said, but customer spending is slowing in China, Mexico and some parts of Europe. Globally, PepsiCo said it raised prices three per cent and sales volumes fell two per cent.

Laguarta said he still feels good about the long-term prospects for PepsiCo’s brands. Younger consumers tend to have more snacks and mini-meals throughout the day, he said. And PepsiCo also has brands that appeal to more health-conscious shoppers, like Smartfood popcorn and PopCorners.

The company added to that health-minded portfolio last week with its US$1.2-billion purchase of Siete Foods, a Mexican-American brand that makes tortilla, salsas, sauces and snacks.

Third-quarter revenue was flat at US$23.3 billion. Wall Street had expected revenue of US$23.8 billion, according to analysts polled by FactSet. PepsiCo’s quarterly revenue growth – which had frequently grown by double digits in recent years – has slowed sharply in the last few quarters.

Net income fell five per cent to US$2.9 billion, or US$2.13 per share. Adjusted for one-time items, PepsiCo earned US$2.31 per share, which was higher than the US$2.29 per share analysts were expecting.

AP