PepsiCo (PEP, Financial) reported a 0.6% decrease in third-quarter revenue to $23.32 billion, falling short of market expectations of $23.76 billion. However, adjusted earnings per share rose by 5% to $2.31, surpassing the anticipated $2.29. Net profit declined to $2.93 billion from $3.09 billion a year earlier.
The company has adjusted its yearly revenue forecast, citing consumer spending constraints, Middle East boycotts, and large-scale recalls affecting food and beverage sales. PepsiCo now expects organic revenue growth of 1-3%, down from the previous target of 4%. The third-quarter organic revenue growth of 1.3% missed analyst expectations. Nevertheless, PepsiCo anticipates at least an 8% increase in earnings for the year, adjusted for fixed currency rates.
Amid economic challenges and consumer spending shifts towards cheaper, private-label products, PepsiCo faces a tough market environment. The company acknowledged potential inflation relief but noted that consumers are still focused on value. CEO Ramón Laguarta emphasized cost control to adapt to the low-growth landscape, while geopolitical tensions, especially in the Middle East, continue to impact sales in certain markets.
Sales in Latin America, Africa, the Middle East, and South Asia declined, though Europe and Asia Pacific saw slight growth. PepsiCo's snack and beverage divisions reported a 2% sales drop, with consumers altering their spending behavior across income brackets.
The company is still recovering from the Quaker Foods North America recall, which led to a 13% sales decline. The recall, initially due to potential salmonella contamination, resulted in a plant closure in June. Recovery from this setback is ongoing, according to PepsiCo executives.
Frito-Lay North America sales decreased by 1.5%, despite efforts to enhance value and convenience for consumers. Although the division continues to grow, the overall category's growth rate has slowed compared to historical trends. North American beverage sales fell by 3%, even as brands like Gatorade and Pepsi posted revenue gains.
