(Bloomberg) — PepsiCo Inc. sounded the alarm over its North American soda business as the company works to also bolster a turnaround in its snack sales. The company lowered its outlook for core constant currency earnings per share to grow between 1% and 2% this fiscal year, down from the low end of 4% to 6%. The maker of Doritos, Lay’s and Gatorade said while it continued to see international sales grow, it was still trying to turn around its efforts in North America. Organic revenue declined slightly in North America for both food and beverages in the third quarter. “We don’t feel good about the beverage business,” Chief Executive Officer Ramon Laguarta said on a call with analysts Thursday. “We’re putting all of the urgency of the business and the focus in improving our performance in soft drinks,” he said. PepsiCo has struggled to boost sales of salty snacks in particular as inflation pressures consumers. It cut prices on some marquee brands earlier this year, but that hasn’t proven sufficient and the company will be raising some prices in the coming months. Now, the company is also contending with a sharper slowdown in its soda business in North America, while getting some cushion from overseas sales. Sales volumes of North American beverages are down 3% for the year so far, the company said, noting that zero-sugar and flavored options have been doing better than full-sugar versions. The company said it’s going to invest more in some of its brands including Poppi, a healthier brand it acquired last year, Pepsi and Mountain Dew. Laguarta said the company was pleased that the price cuts had helped reverse a decline in sales growth into slightly positive territory, but that it was also “less volume growth than what we had initially anticipated” due to the financial stress pressuring consumers. Those price cuts give the company “flexibility in what we do to absorb this new wave of inflation,” Laguarta said, but noted that even with a price increase, prices next year will still be below where they were in 2025. The cost of PepsiCo’s chips, in particular, came into focus earlier in the year after the company lost grocery store shelf space because they’d gotten too expensive — with some topping $7 a bag. The company cut prices, but Chief Financial Officer Steve Schmitt said the reductions had cut into its margins. Shares of PepsiCo rose 1.2% at 9:38 a.m. in New York. They were down 14% this year through Wednesday’s close, compared with a 14% increase in the S&P 500 Index. Some analysts said the results were not as bad as they had braced for. “While there have been some signs of progress, rate of improvement has stalled given the inflationary pressures,” RBC Capital Markets analyst Nik Modi wrote in a note Thursday morning. But overall, results were “marginally better than feared,” he said. The company will continue to offer more products with protein and fiber, as well as those with simpler ingredients and different oils, including avocado oil, Laguarta said. Many big food companies are grappling with how to recapture consumers shifting their spending away from packaged food to less-processed options. PepsiCo is seeing value in its pilot program integrating its snacks and beverage business, Laguarta said. But while that will work in some parts of the country, it doesn’t make as much sense in other areas, where the company will look for opportunities to refranchise its bottling, he said. —With assistance from Subrat Patnaik. (Updates share trading, adds commentary from analyst call.)
PepsiCo Seeks to Bolster Soda Business, Speed Snack Recovery
