PepsiCo is targeting a modest organic growth of approximately 1% for the year, maintaining a pace similar to that observed in the third quarter. This cautious outlook reflects the impact of a fragile U.S. consumer market and ongoing geopolitical issues in the Middle East.
During a press conference on October 8, Chairman and CEO Ramon Laguarta characterized fiscal 2024 as a “year of normalization” following three consecutive years of what he deemed “outsized” double-digit growth in the snacks sector.
Although PepsiCo is strategically planning for the long term—with initiatives focused on productivity, digital transformation, and health-oriented innovations—the latest financial results necessitated another adjustment to their forecasts.
After reporting a non-GAAP organic revenue increase of 1.3% for the third quarter and 1.9% year-to-date, CFO Jamie Caulfield informed analysts that he did not anticipate significant shifts in conditions from Q3.
The snack and beverage giant has revised its organic revenue guidance downward, now expecting a low single-digit growth rather than the earlier forecast of approximately 4%, an adjustment from a previously adjusted target of at least 4%.
The company still projects an 8% growth in core, constant-currency earnings per share (EPS), with the quarterly figure having increased 5% to $2.31. Year-to-date, EPS stands at 7%, reflecting a total of $6.20.
PepsiCo’s leadership remains committed to long-term goals. Laguarta informed analysts, “We’re not taking our eyes off the ball in the long term. We don’t think our category will grow at 1% long term.” He is optimistic that, with ongoing investments back into the business and a healthy brand portfolio, growth will exceed the current projections.
Caulfield addressed the reasons behind the latest forecast downgrade and discussed the complexities surrounding pricing strategies, which aim to stimulate consumer demand. He explained, “The recovery of the consumer in the U.S. has been slower than we anticipated, and to a lesser degree, geopolitical tensions have affected international markets. This accounts for about a half-point drag on total PepsiCo revenue growth for the quarter.”
In discussing pricing strategies, Caulfield noted, “We’re investing in affordability where it makes sense, but we’re also exploring multiple levers to stimulate demand. Therefore, it is premature to provide a definitive outlook on pricing.”
Laguarta also offered insights regarding the geopolitical climate in the Middle East, highlighting the impacts that ongoing tensions have on their substantial business in that region. He noted that he doesn’t expect changes in this situation over the coming months.
In a joint statement prepared to accompany the quarterly results, the executives elaborated on the evolving business landscape. They stated, “We expect consumers to remain discerning and value-driven as inflationary pressures keep impacting spending patterns. Additionally, geopolitical tensions and economic challenges are expected to persist in specific international markets.”
However, they anticipate that these cost pressures will “moderate,” allowing PepsiCo to channel investments into innovation and scaling up manufacturing and distribution capabilities to support future growth.
Laguarta explained, “We are automating our supply chain, including warehouses and distribution centers. Our substantial investment in data organization now allows us to implement digitalization at scale across the value chain—from procurement to factory operations and logistics.”
To enhance long-term consumer demand, PepsiCo is focusing on Gen Z eating habits, identifying a trend towards increased snacking and preference for “mini meals” instead of traditional meal formats. The company is also emphasizing healthier snack options, including unsalted and baked varieties. Recently, they acquired Siete Foods, a purveyor of better-for-you snacks.
He added, “We are committed to evolving our portfolio by making significant investments in our permissible options, which are experiencing rapid growth. We plan to prioritize value in upcoming quarters while ensuring we continue to invest in our long-term brand development.”
In summary, while PepsiCo grapples with current economic hurdles and consumer dynamics, its leadership remains focused on innovation and strategic growth initiatives within the food and beverage industry, aiming to align with changing consumer preferences and bolster profitability.
