PepsiCo announced quarterly revenue and earnings on Thursday that above analysts’ expectations, as growth abroad countered another quarter of falling North American volume.
The company’s stock increased by over 2% during morning trading.
Here is a comparison between the company’s fiscal third-quarter results and what Wall Street anticipated, according to an LSEG survey of analysts:
- Earnings per share: $2.29 adjusted vs. $2.26 expected
- Revenue: $23.94 billion vs. $23.83 billion expected
Compared to $2.93 billion, or $2.13 per share, a year earlier, Pepsi reported third-quarter net income attributable to the company of $2.6 billion, or $1.90 per share.
Pepsi made $2.29 per share before deducting restructuring and impairment charges, among other things.
Net sales reached $23.94 billion, up 2.6%. Pepsi’s organic revenue grew 1.3% during the quarter when acquisitions, divestitures, and foreign exchange were excluded.
The owner of Gatorade and Frito-Lay, however, continues to observe a decline in consumer demand for their goods. During the quarter, Pepsi’s global food and drink volume decreased by 1%. Price and foreign exchange fluctuations are removed from the metric.
As Pepsi shifts to smaller package sizes to cater to consumers who are price sensitive, CEO Ramon Laguarta stated during the company’s conference call that volume was also softer. Although such change reduces volume, it increases revenue.
Pepsi, in particular, has reported difficulties in its home market in recent quarters, leading the company to investigate cost-cutting strategies and reinvest in its brands.
“As we aggressively reduce costs, accelerate innovation, and further sharpen our price pack architecture initiatives, we also expect our North America business to deliver improved growth and profitability trends,” executives stated in prepared statements.
In the fiscal third quarter, Pepsi Foods North America, which owns brands like Doritos, Quaker Oats, and Pearl Milling, reported a 4% decline in volume. The business has been making investments in more “permissible” snack options, such as Quaker rice cakes and Stacy’s pita chips. More snack choices are on the horizon, such as Doritos Protein, which attempts to capitalize on consumers’ preference for foods high in protein.
Pepsi also announced to launch Doritos and Cheetos “NKD,” which will not utilize artificial dyes or flavors, and presented new packaging for Lay’s potato chips that emphasized the product’s absence of artificial colors and flavors. The Trump administration’s push has prompted Pepsi and other companies to remove those components.
The “Make America Healthy Again” movement has demonized canola oil and other seed oils in spite of the lack of scientific evidence, and Pepsi plans to incorporate more avocado and olive oils in their snacks.
By lowering the price of its single-serving snacks and multipacks, the company has also been attempting to draw in budget-conscious customers.
According to officials, enhancing the North American food segment’s performance “is a top priority for the business.”
The volume of Pepsi’s North American beverage unit decreased by 3%, but Laguarta observed “improved momentum” in the company. During the quarter, the company’s eponymous soda had a growth in both volume and revenue, and management reported that Poppi, a recent purchase, saw a more than 50% increase in retail sales so far this year compared to the same period last year.
Rival energy drink manufacturer Celsius acquired Pepsi’s shares in Rockstar Energy in the US and Canada in September. An 11% interest in Celsius is owned by the beverage giant.
Elliott Investment Management, an activist investor, revealed a $4 billion investment in Pepsi that same month. Elliott advocated for several reforms in a letter and presentation to the board of the corporation, including reinvesting in its soda brands and possibly refranchising its North American bottling network. On the business’s conference call, Laguarta stated that Elliott and Pepsi both think the company is undervalued.
“We’re going to have conversations in the coming weeks and months,” Laguarta said.
The business also restated its outlook for the entire year. It still anticipates organic revenue to increase by a low single-digit percentage and its core constant currency earnings per share to remain largely unchanged from the previous year.
On Thursday, Pepsi also said that Jamie Caulfield, its chief financial officer, would be retiring. He will be succeeded on November 10 by Steve Schmitt, CFO of Walmart U.S.