Strong growth in PepsiCo’s international business has spared the company from having to downgrade its financial guidance for the year, as weak consumer sentiment delays its US-focused turnaround.
Revenues for the group grew 6.4% to $24.2bn in the quarter to 13 June, with operating profit up 125% to $4bn. Global organic volumes – which exclude acquisitions and divestitures – grew at their fastest rate since 2022.
The group’s chairman and CEO Ramon Laguarta attributed the company’s performance to robust organic sales growth from its global operations – including 9% growth by its international beverages franchise and Asia-Pacific food business. The group’s EMEA division reported 6% organic sales growth.
The strong global performance helped cover for a more severe than expected decline in the US food business’ organic sales, which were down 2% against expectations of 0.1% growth.
The decline was largely due to investment in pricing, as it continues to chase volumes as part of the turnaround strategy. While volumes for the division were flat in the quarter, PepsiCo said it had made volume share gains in many of its core categories.
PepsiCo’s North American beverages division also missed expectations in the quarter, however, as organic sales were weighed down by a 2% volume decline.
PepsiCo reaffirmed financial guidance for the year, though it said profit performance would be weighted towards the final quarter of the year.
CFO Steve Schmitt explained it was because the company expected higher input cost inflation in the second half of the year.
“Record productivity savings and refund claims for tariff paid last year should help mitigate a good portion of the higher costs and investments in the business that aim to accelerate growth,” he added.
RBC analyst Nik Modi said while he was encouraged by the decision to cut prices – and expected that would improve volumes – the “rate of improvement” in PepsiCo’s turnaround had “stalled”.
“The beverage business continues to disappoint, and we expect PepsiCo will continue to be a source of share to both Coca-Cola and Keurig Dr Pepper,” he added.
“Ultimately, we believe PepsiCo will have to fully refranchise its beverage business or they will continue to lose share. And while the company’s latest efforts to combine food/beverage makes sense from a productivity perspective, we believe it will ultimately impact topline (via sub-optimal execution).”
PepsiCo’s ongoing efforts to revitalise its slumping US business were thrown into relief in September last year, when activist investor Elliott went public with a plan it hoped would revive volumes and improve profitability.
Barclays analyst Lauren Lieberman added that despite “some debate” over whether PepsiCo would hold the line on its full-year guidance, today’s update had been “constructive”.
“The company points several times to the weaker US consumer environment and slower category growth, even as volume share trends are improving,” she said.
“We’ll be curious to hear more on the call regarding further remediary actions to add steam to [the North American] turnaround ahead.”
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