“PepsiCo Faces Headwinds as Consumer Snacking Trends Shift Away from Home”
The shift in consumer behavior towards dining out more and reducing home snacking poses challenges for PepsiCo (PEP), as reflected in a 3% drop in its stock to $168.72 during Friday trading. Despite surpassing earnings expectations with adjusted earnings of $1.78 per share, the beverage and snack company reported an unexpected decline in quarterly revenue, falling 0.5% to $27.9 billion, contrary to analysts’ anticipated increase to $28.4 billion.
PepsiCo
Sales in North America witnessed a noticeable decrease, with PepsiCo’s Frito-Lay business experiencing a 3% revenue drop, and Quaker Food’s sales falling by 16%, primarily due to a food safety incident leading to product recalls. The North American beverage segment also saw a 2% decline from the previous year.
PepsiCo attributes the slowdown to higher prices and a shift in consumer snacking habits away from home, impacting a company known for its strength in snacks and beverages consumed at home. In response, PepsiCo is investing to enhance its presence in away-from-home channels, exploring opportunities for growth beyond traditional packaged products.
CEO Ramon Laguarta emphasized the company’s efforts to offer diverse food experiences, such as “Walking Tacos” and “Doritos Loaded,” testing food trucks, and extending their brands beyond conventional packaging. Despite the current challenges, PepsiCo remains optimistic about consumer health, anticipating higher wages, potential interest rate decreases, and increased disposable income in households.
PepsiCo’s stock has experienced an 11% decline since its peak in May, despite strong headline sales in 2023. Looking ahead to 2024, the company aims for 4% organic revenue growth and 8% per-share earnings growth, representing a slowdown from the 9% revenue growth achieved in 2023.
In the face of inflation, PepsiCo, like other snack and beverage companies, navigates the delicate balance of raising prices without alienating customers. The company raised prices by 9% in the last quarter of 2023, following seven consecutive quarters of at least 10% price increases.
PepsiCo continues its commitment to shareholders by raising its annual dividend for the 52nd consecutive year to $5.42 per share from $5.06, payable in June. The company also plans a $1 billion share buyback in 2024, offering investors a stable 3% dividend yield.
Investors express concerns about potential impacts from obesity drugs like Ozempic affecting consumer spending on packaged foods. However, PepsiCo has proactively invested in healthier options, including smaller-portion packages, zero-sugar beverages, and convenient foods with reduced sodium and low-or-no saturated fat content. Notable acquisitions such as Rockstar Energy Beverages, CytoSport, and Bare Foods reflect the company’s commitment to adapting to evolving consumer preferences.
