PepsiCo beats earnings expectations as snack price cuts drive demand
Price reductions of up to 15% on snack brands including Lay's, Tostitos, Doritos, and Cheetos appear to have moved the needle
SOPA Images / Getty Images
PepsiCo $PEP reported first-quarter revenue and earnings that topped analysts' expectations, with price reductions on key snack brands helping the company's North America food business post its first volume increase in more than two years.
Revenue totaled $19.44 billion, an 8.5% increase that cleared the $18.94 billion consensus estimate compiled by LSEG. On an organic basis — stripping out the effects of deals and currency moves — sales were up 2.6%. Adjusted earnings of $1.61 per share also beat the $1.55 analysts had penciled in.
Related Content
Price reductions of up to 15% on snack brands including Lay's, Tostitos, Doritos, and Cheetos, announced in February, appear to have moved the needle: the combined Frito-Lay and Quaker Oats division logged 2% volume growth after posting a 1% decline in the prior quarter. Retailers also restored shelf space to PepsiCo products following the cuts, the company said.
Beverage volumes fell 2.5%. This division includes PepsiCo’s main cola, Starry, and the new addition Poppi. Net profit for the quarter was $2.33 billion, or $1.70 per share, up from $1.83 billion, or $1.33 per share, a year ago.
Gatorade is also due for an overhaul: PepsiCo said it intends to broaden the sports drink's appeal beyond athletic consumers, roll out a reduced-sugar formulation, and phase out artificial colors from the product line. The company said the updated products would begin rolling out later this year.
PepsiCo kept its full-year targets the same, expecting organic revenue to grow 2% to 4% and earnings per share to rise 4% to 6%. CFO Steve Schmitt noted that the global outlook is less certain due to ongoing geopolitical conflicts. The company also said its hedging strategy for packaging and raw materials, which usually covers nine to twelve months ahead, should help protect against some short-term cost increases.
Separately, Reuters reported that PepsiCo has been trimming its product portfolio and consolidating production facilities as part of a broader effort to streamline its North America supply chain — steps taken partly in response to demands from activist investor Elliott Management.