Costs continue to rise, recovery is half slow: PepsiCo (PEP.US) cuts performance guidelines due to pressure on North American business

The Zhitong Finance App learned that PepsiCo (PEP.US) lowered profit expectations, and the snack and beverage giant's recovery process in the North American market has taken longer than expected. Financial reports showed revenue of US$25.27 billion, up 5.6% year over year, exceeding expectations of US$310 million; adjusted earnings per share were US$2.34, exceeding expectations of US$0.04.

PepsiCo's organic sales increased by 3.1% this quarter, higher than the market's general forecast of 2.9%. The increase in organic sales was mainly due to a 9% increase in Europe, the Middle East and Africa, while PepsiCo's sales in North America remained flat, as the recovery momentum in the company's local region weakened.

The cost pressure faced by the company is particularly pronounced in the North American market and is eroding profit margins.

Pepsi is working to revive sales of savory snacks, while also dealing with the double challenge of rising costs and consumers' tightening of spending under economic pressure. In February of this year, the company lowered the prices of mid-size supermarket products from some major brands. However, the company will raise some prices in the next few months, which indicates that previous price cuts have not effectively boosted sales growth.

In the third quarter, PepsiCo's organic food and beverage revenue in the North American market both declined slightly. Strong international sales, however, helped the company exceed analysts' earnings per share for the quarter.

CEO Ramon Laguarta said Pepsi would look for areas to cut costs, adding that the underperforming North American business “has considerable room for improvement.”

He said that the company will continue to launch more products containing protein and fiber, as well as products with simpler ingredients and alternatives to fats such as avocado oil. Currently, many large food companies are struggling to win back consumers, and the latter are shifting their spending from packaged foods to less processed options.

Laguarta also said that Pepsi needs to “reinvigorate its performance” in the carbonated soft drink business. Currently, zero-sugar and flavored products perform better than full-sugar products.

Pepsi's potato chip price issue came into focus earlier this year. Due to overpricing, some products cost more than $7 per bag, and the company lost shelf space in the grocery store as a result. The company then cut prices, but Chief Financial Officer Steve Schmitt said the price cuts eroded profit margins.

Performance Guidelines

Looking ahead, PepsiCo expects organic revenue to grow 3% for the whole year, and core fixed exchange rate earnings per share to grow 2.5% to 3.5%. Total cash returns to shareholders are expected to be around $8.9 billion, including $7.9 billion in dividends and $1 billion in share repurchases.

The parent company of Doritos, Lexi, and Gatorade currently expects core fixed exchange earnings per share to increase by 1% to 2% this fiscal year, compared to the lower end of the 4% to 6% increase range previously.