PepsiCo (PEP, Financial) released its third-quarter financial results, revealing a 0.6% year-on-year decline in revenue to $23.32 billion, missing the market expectation of $23.76 billion. However, adjusted earnings per share rose by 5% to $2.31, surpassing the expected $2.29. The net income attributable to shareholders was $2.93 billion, down from $3.09 billion in the same period last year.
The company lowered its revenue forecast for the current year due to tighter consumer budgets, a boycott in the Middle East, and a large-scale recall affecting its food and beverage sales. Previously, sales had fallen short of expectations for two consecutive quarters. PepsiCo now anticipates organic revenue growth of 1-3% for the year, reduced from an earlier 4% target. In Q3, most of its divisions experienced sales declines, leading to a lower-than-expected organic revenue growth of 1.3%. Despite these challenges, PepsiCo still expects an 8% increase in earnings this year on a constant currency basis.
The company, known for products such as Lay's chips and Lipton tea, faces difficulties as rising economic prices have pushed consumers to cut spending or switch to cheaper private-label brands. PepsiCo's CEO, Ramón Laguarta, stated the company will focus on stringent cost management to adapt to the current low-growth environment. He also mentioned that boycotts in the Middle East and intensified geopolitical tensions in some international markets have disrupted operations, with declines in the Latin American, African, Middle Eastern, and South Asian markets, although Europe and Asia Pacific showed slight sales growth.
PepsiCo's snack and beverage sectors saw declines in the third quarter, with food and beverage volumes dropping by 2%. Executives noted a shift in purchasing behavior across different income levels. The company continues to face challenges from last year's Quaker Oats recall, with Quaker Foods North America seeing the largest sales decrease at 13%. The recall, initially due to potential salmonella contamination, led to an expanded recall and a factory closure, although its effects are gradually subsiding.
Frito-Lay North America's sales dipped by 1.5%, as the company strives to offer more value to consumers and enhance the convenience of purchasing snacks like Cheetos, SunChips, and Stacy’s pita chips. While sales in this division continue to grow, the pace has slowed compared to historical trends. Executives highlighted that salty snacks have underperformed this year, following several years of outperforming the packaged foods category.
Additionally, North American beverage sales fell by 3%, although brands like Gatorade and Pepsi saw revenue growth this quarter. Pre-market trading saw PepsiCo shares drop by 0.56%, and the stock has fallen by 2% this year, while the S&P 500 index gained 20% over the same period.
