PepsiCo Revises Annual Sales Forecast Downward After Challenging Third Quarter

PepsiCo, the global beverage and snack giant, has revised its annual sales forecast downward following a challenging third quarter marked by subdued consumer

PepsiCo lowered its annual sales forecast after a challenging third quarter with weak consumer demand in North America and other international markets.

The company reported a surprising 0.6% drop in third-quarter revenue to $23.319 billion, below Wall Street expectations of $23.860 billion.

CEO Ramon Laguarta pointed to several factors impacting the company's performance, including "subdued category performance trends in North America, the continued impacts related to certain recalls at Quaker Foods North America, and business disruptions due to rising geopolitical tensions in certain international markets."

These challenges prompted PepsiCo to adjust its full-year organic revenue growth projection from about 4% to a low single-digit increase.

The North American market, a crucial region for PepsiCo, showed signs of weakness across multiple segments. Frito-Lay North America experienced a 1.5% decline in sales volumes, while North American beverage volumes fell by 3%.

The Quaker Foods North America segment faced particular difficulties, with organic revenue plummeting 13% during the quarter, following an 18% decline in the second quarter. These declines were partially attributed to ongoing impacts from product recalls earlier in the year.

Despite the revenue challenges, PepsiCo managed to improve its profit margins. The company reported a 111 basis point growth in margins, driven by price increases and efficiency measures across its operations. Adjusted earnings per share came in at $2.31, slightly ahead of analyst estimates of $2.29.

In response to consumer pushback against price hikes, PepsiCo began to moderate its pricing strategy. Frito-Lay prices saw only a modest 0.5% increase in the third quarter. Globally, the company implemented a 3% price increase, but sales volumes were down in all markets except Europe.

Looking ahead, PepsiCo plans to invest in commercial activities for the remainder of the year to stimulate consumer demand.

However, the company will maintain a strong focus on cost discipline given the current subdued growth environment. Laguarta stated, "We continue to expect to deliver at least 8 percent core constant currency EPS growth as we will focus on tightly managing our costs to better align with the subdued growth environment that we are currently operating in."

PepsiCo still anticipates returning about $8.2 billion in cash to shareholders, including $7.2 billion in dividends and $1.0 billion in share buybacks.

The company's stock price has reflected these challenges, with shares down 1.6% year-to-date as of Monday's close, in contrast to the S&P 500's 19.4% gain over the same period.

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