PepsiCo (PEP, Financial) is nearing its 52-week lows after reporting another quarter of declining volumes in North America for Q2. The company has adjusted its FY24 organic revenue growth outlook to approximately 4% year-over-year, down from its previous forecast of at least 4%. This subtle change indicates potential revenue shortfalls. However, PepsiCo has maintained its other FY24 projections.
PepsiCo's reaffirmation of its FY24 EPS outlook of at least $8.15 is commendable. The company is on track to fully recover its supply chain by Q4, with store shelf refills also expected to be completed by then.
Despite these positive notes, PepsiCo continues to grapple with a softer consumer environment both domestically and internationally.
- Economic challenges may not be evident in PepsiCo's Q2 headline numbers, which showed a double-digit EPS beat and 0.8% year-over-year top-line growth, along with 1.9% organic growth, reaching $22.5 billion. However, volumes tell a different story, with a 4% decline in Frito-Lay North America and a 3% drop in Beverages North America. Prices in these segments increased by 3% and 5% year-over-year, respectively.
- Frito-Lay's 4% volume drop was particularly concerning, marking the worst quarter in years. Shifts in consumption trends from in-home to away-from-home have significantly impacted portion sizes and volumes. Unlike beverages, which have strong brand loyalty and are harder to replicate, snacks face more competition, making higher prices less acceptable. PepsiCo is addressing pricing concerns and expects improvements in the next two quarters.
- The volume decline in Beverages was disappointing, worsening from Q1. However, past quarters have seen even steeper declines, somewhat mitigating the impact of Q2's drop.
- Internationally, PepsiCo performed well with volume gains in Beverages across all regions and a 5% increase in Convenient Foods in Europe, a turnaround from last quarter's 5% drop. However, the food line saw volume declines in Latin America and Asia Pacific. PepsiCo remains optimistic, not foreseeing issues in Latin America and noting solid performance in Asia despite cautious consumer behavior.
While PepsiCo's Q2 performance wasn't overly alarming, it continues a frustrating trend from previous quarters. Prices are rising across all categories except Quaker Foods, which saw another sharp volume drop, adding more pressure on consumers. It will be interesting to compare PepsiCo's performance with peers like Coca-Cola (KO, Financial) and Keurig Dr Pepper (KDP, Financial), who reported better beverage volume growth in the U.S. last quarter, suggesting potential market share pressure.
