PepsiCo is steering toward organic growth of around 1% for the year, a similar pace to the third quarter, as the fragile US consumer and events in the Middle East weigh.

Chairman and CEO Ramon Laguarta emphasised today (8 October) he saw fiscal 2024 as a “year of normalisation” after three years of what he called “outsized” double-digit growth in snacks.

While PepsiCo is planning for the longer term with productivity initiatives, digitalisation and innovation centred on health and wellness, the latest results came with another downgrade.

After reporting a non-GAAP 1.3% rise in organic revenue or the third quarter and 1.9% for the year so far, CFO Jamie Caulfield told analysts he did not “expect a huge inflection up or down from the conditions that existed in Q3”.

The snacks and drinks maker revised its guidance lower for the metric today and expects a low single-digit increase in organic revenue compared to the “approximately” 4% forecast put forward at the second-quarter results stage in July. The July prediction in itself had already been downgraded from “at least” 4%.

Growth in core, constant-currency EPS is still envisaged at 8% after rising 5% in the quarter to $2.31. Year to date, it was up 7% at $6.20.

“We're not taking our eyes off the ball in the long term. We don't think our category will grow at 1% long term,” Laguarta told analysts.

“We think our category, with the investments that we are putting back into the business and the health of our brands, and the innovation that we have in place for this year and next year, will deliver much more than 1%.”

Caulfield was asked to explain the drivers behind the latest organic growth downgrade and the outlook for pricing as the business seeks to spur a pick-up in consumer demand.

“The recovery of the consumer in the US, frankly, has been slower than we had anticipated, and then, to a lesser degree, the geopolitics have impacted international. That's probably a half-point drag on total PepsiCo revenue growth in the quarter,” he said.

“As far as pricing goes, it's a bit complex. We're investing in affordability where it makes sense but we're investing in a number of levers to stimulate demand and I think it’s too soon to call on what the pricing outlook is going forward.”

Laguarta also gave his take on the Middle East during today’s analysts chat. “The Middle East, it's a different reality, the fact that we have a big business in the Middle East and, yes, it's been impacted by the geopolitical situation. I don't think that's going to change in the coming months.”

In jointly prepared remarks to accompany today’s results, the two executives outlined the business climate going forward.

“We expect consumers to remain choiceful and value-conscious as the cumulative effects of inflationary pressures continue to impact budgets and spending patterns. Pockets of elevated geopolitical tension and macroeconomic pressure are also expected to persist in certain international markets,” they said.

However, those cost pressures are expected to “moderate”, with PepsiCo channelling investment into innovation and additional manufacturing and distribution capacity to support growth.

Laguarta explained: “These platforms are automation of our supply chain – warehouses, manufacturing and distribution centres.

“We have invested a lot in data and organising our data in a way that now we can deploy digitalisation at scale throughout the value chain, from the way we procure to the way we run our factories, to our transportation, to our go-to markets. We're really digitalising the company.”

As a means to prop up consumer demand in the longer term, PepsiCo is seeking to tap into Gen Z eating behaviours, where Laguarta said they are favouring snacking, and snacking more often, or hankering after what he termed “mini meals” rather than a full-blown option.

“Permissible” snacking is also a PepsiCo focus such as unsalted, along with baked options and slightly salted, Laguarta said, noting the recent acquisition of better-for-you snacks maker Siete Foods.

Laguarta added: “We're working on the long-term evolution of the portfolio. We'll continue to invest in our permissible portfolio. This is growing very fast.

“We're probably going to lean a bit more on value in the first quarters [of next year], without taking the ball off the long-term investments that we're making consistently in building the portfolio for the future.”

"PepsiCo trims sales forecast again amid “normalisation” phase in snacks" was originally created and published by Just Food, a GlobalData owned brand.

The information on this site has been included in good faith for general informational purposes only. It is not intended to amount to advice on which you should rely, and we give no representation, warranty or guarantee, whether express or implied as to its accuracy or completeness. You must obtain professional or specialist advice before taking, or refraining from, any action on the basis of the content on our site.