Jamie Spencer
PepsiCo’s latest earnings report reveals a tough market environment as the snack and beverage giant struggles with weakening demand in the U.S., its largest market. The company missed quarterly revenue expectations and issued an annual profit forecast below analysts’ estimates. As consumers prioritize essential purchases, PepsiCo is adjusting its strategy to regain lost ground.
Revenue Miss and Declining Sales
PepsiCo’s total organic volume dropped 1% in the fourth quarter, while its average prices rose 3%. The company’s two biggest segments—North America Beverages and Frito-Lay North America—both reported a 3% decline in volume.
“Frito-Lay business is still finding its footing as elevated prices weigh on snacking trends … beverage business also continues to lose share, and we believe PepsiCo is reaching its pain threshold,” said Nik Modi, an analyst at RBC Capital Markets.
Consumers Shift to Budget-Friendly Options
With inflation pressuring household budgets, Americans are cutting back on non-essential spending, including soft drinks and salty snacks. To counter this trend, PepsiCo is offering multi-packs and mini canisters, targeting shoppers looking for smaller, more affordable options.
The company is also using more promotions and discounts to stimulate demand after several quarters of price hikes slowed consumer purchases.
New Investments and Product Innovations
PepsiCo is doubling down on product innovation to reignite consumer interest. The company announced plans to revamp its existing products and introduce ethnic-inspired flavors under its Sabritas, Marias, and Natu Chip brands.
“We expect our North America performance to gradually improve as the year progresses, and our commercial activities take hold,” executives said in the company’s prepared remarks.
Stock Reaction and Investor Concerns
Following the earnings report, PepsiCo’s shares fell 2.5% in early trading. Despite missing revenue estimates, the company slightly exceeded profit expectations, reporting earnings of $1.96 per share compared to analyst estimates of $1.94.
“They have undergone some pretty big investments in terms of increasing productivity and reducing costs, that certainly seems to play out in the growth of earnings … but the top-line revenue is definitely under pressure,” said Brian Mulberry, client portfolio manager at Zacks Investment Management.
Looking Ahead: Can PepsiCo Regain Momentum?
PepsiCo expects only a low-single-digit increase in core earnings per share for fiscal 2025, falling short of the market’s anticipated 4.73% rise. The company faces an uphill battle as it navigates changing consumer behavior, inflationary pressures, and stiff competition.
Whether its new pricing strategies and product innovations can reverse declining sales remains to be seen. For now, PepsiCo must prove it can adapt to evolving consumer preferences and sustain long-term growth.
