PepsiCo stock dented as snack slowdown saw revenue disappoint
PepsiCo (NASDAQ:PEP) shares started Thursday on the back foot, albeit recovered, after it reported quarterly revenue shy of market forecasts.
The soda and snacks company did give the market better-than-expected earnings – $2.28 per share versus $2.16 - for the second quarter, but, cautioned over an underperforming snacks and food segment which left investor sentiments on the bearish side.
Revenue for the second quarter came in at $22.5 billion, compared to a consensus market forecast of $22.59 billion.
Specifically, Pepsico revealed North American demand for snacks and beverages weakened, with Frito-Lay's sales volume dropping 4% and beverage volume decreasing by 3%.
Quaker Foods North America, meanwhile, experienced an 18% revenue decline – with the drop attributed to a product recall.
Its international businesses meanwhile supported group earnings, thanks to efficiency improvements and increased automation.
Looking ahead, PepsiCo pitched its full-year organic revenue growth outlook to 4%, down from a somewhat woolly prior guidance of "at least 4%".
Chief executive Ramon Laguarta noted that consumers across all income levels are more value-conscious, shifting increasingly towards cheaper store brands and fewer purchases.
Against this backdrop, Pepsico now plans to increase advertising and in-store promotions to attract customers back.
“For the balance of the year, we will further elevate and accelerate our productivity initiatives and make disciplined commercial investments in the marketplace to stimulate growth,” Laguarta said in a statement.
“These investments will focus on surgically providing optimal value propositions within certain portions of our North America convenient foods portfolio, amplifying our advertising and marketing initiatives and leveraging our go-to-market distribution capabilities to enable more precise marketplace execution.”
Aarin Chiekrie, equity analyst at London stockbroker Hargreaves Lansdown, said that the financial results show that “price hikes have become increasingly difficult for consumers to stomach, pushing volumes in the wrong direction.”
The analyst added: “The group will have to lean into cost-cutting and productivity initiatives in order to offset some of the impacts of lower volumes and keep profit targets on track in the short term.
“But with debt at relatively high levels and the valuation still high, the shares are likely to be sensitive to stock market fluctuations and earnings disappointments.”
In New York, PepsiCo shares were down $2.44 or 1.49% changing hands at $161.15.
