PepsiCo quarterly revenue disappoints on slowing sales of snacks, beverages
Consumers across income groups looking for more value, CEO says
PepsiCo says adding new flavors to snacks
Q2 revenue of $22.50 bln vs estimates of $22.57 bln
Shares down more than 3%
Updates shares in paragraph 10 and adds graphic
By Ananya Mariam Rajesh and Jessica DiNapoli
July 11 (Reuters) -PepsiCo PEP.O missed expectations for second-quarter revenue on Thursday as a series of price hikes and competition from private-label brands slowed sales of its snacks and soda mainly in the United States, its largest market.
Analysts have said that product prices, which are starting to normalize after nearly two years of multiple hikes, are still higher than pre-pandemic levels, giving packaged-food companies such as PepsiCo little room to raise prices as volumes shrink.
PepsiCo raised average product prices by 5% for the quarter ended June 15, in line with the first quarter. However, overall organic volumes slipped 3% in the reported period.
Company executives said year-to-date performance across many food categories, including snacks, was subdued as consumers had become more value-conscious while spending.
"Throughout we are seeing much more price sensitivity and consumers looking for more value across all income groups. Now that is something that we have to take into consideration," Pepsico CEO Ramon Laguarta told Reuters.
He also said the company had been stepping up productivity and cannot continue to price up.
PepsiCo is adding new flavors to its brands such as Lay's, Doritos and Cheetos to suit various consumer preferences, while also offering products across different price tiers.
"We have to put much more focus on our efficiency," Laguarta said.
Frito-Lay North America, the company's snacking business which is also its second largest, saw volumes drop 4% while the North America beverages division, its largest, saw a 3.5% decline.
Shares of the company fell as much as 3.4% to a nine-month low of $158.03after PepsiCo also said it expected fiscal 2024 organic revenue to be about 4%, compared with prior expectations of at least 4%.
"They are on the lower side of projections here, they're seeing the weakness here and we've been talking about that for several quarters now and that seems to be ongoing," said Don Nesbitt, senior portfolio manager at F/m Investments.
Still, easing production and other expenses from pandemic peak, along with the impact of price hikes, helped PepsiCo post an adjusted profit of $2.28 per share, beating LSEG estimates of $2.16.
The company's revenue rose 0.8% to $22.50 billion in the quarter, while analysts had estimated $22.57 billion.
"It's not a business to sit on its hands and there is a clear focus on profitable growth, so PepsiCo is going to have to pull various levers depending on products to try and stay on top," said Dan Coatsworth, investment analyst at AJ Bell.
PepsiCo's shares have underperformed rival Coca-Cola https://reut.rs/464orTM
Reporting by Ananya Mariam Rajesh in Bengaluru; Editing by Anil D'Silva
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