PepsiCo trims sales forecast as customers tighten purse strings on snacks, sodas

By Savyata Mishra

(Reuters) -PepsiCo cut its forecast for annual sales growth on Tuesday as picky consumers in North America limit their spending on savory snacks and sodas, while opting for cheaper private-label brands.

The packaged food giant now expects fiscal 2024 organic sales to grow in a low single-digit range. It had previously forecast a 4% rise.

"The cumulative impacts of inflationary pressures and higher borrowing costs over the last few years have continued to impact consumer budgets and spending patterns," CEO Ramon Laguarta said.

A rise in prices for food and other products is forcing American consumers to curtail their spending habits, opt for smaller packages and portions, and shop more at mass retailers than at convenience stores, which typically account for a bigger portion of PepsiCo (NASDAQ:PEP )'s beverage sales.

"The company has not been immune from overall category pressure facing most consumer staples companies," RBC Capital Markets analyst Nik Modi wrote in a note.

PepsiCo also posted a surprise drop in third-quarter revenue, hurt in part by a fallout from the recall of Quaker Foods products owing to concerns around a salmonella contamination earlier this year.

Its international markets of Latin America, South Asia and Europe, which had till now helped weakness in its North America PepsiCo business, are witnessing a slowdown in volumes.

"Pockets of elevated geopolitical tension and macroeconomic pressure are also expected to persist in certain international markets," Laguarta said.

Organic revenue in Quaker Foods North America segment slumped 13% during the quarter, following an 18% decline in the second quarter.

However, price increases and measures to drive efficiencies across its operations helped drive a 111 basis point growth in margins.

It also earned $2.31 per share on an adjusted basis, beating estimates of $2.29 per share, according to data compiled by LSEG.

It maintained annual adjusted profit forecast.

Net revenue fell 0.6% to $23.32 billion in the quarter ended Sept. 7 from $23.45 billion last year. Analysts estimated a 1.3% jump to $23.76 billion.

Shares of the company fell about 1% in premarket trading.

Source: Investing.com