The maker of snacks and soda pointed to weakness in North American business
By Connor Hart
PepsiCo cut its full-year earnings outlook as it faces inflation, higher advertising costs and continued weakness in its North American business, even as the company works to reduce expenses and revive sales.
Ongoing inflation and higher advertising costs are weighing on profit, overshadowing steps the company has taken to reduce operating expenses, PepsiCo said. At the same time, its North American business continues to underperform.
"Our business in North America performed below our expectations and represents a meaningful opportunity for improvement," Chief Executive Ramon Laguarta said on a call with analysts Thursday.
The company is working to turn the business around, and said it saw some improvement from the prior quarter. New product launches and lower prices helped spur sales across its snacks business, while strong sales of functional and zero-sugar beverages offset weak soda sales.
Still, consumers remain under pressure, making it difficult to persuade them to buy soda and snacks. "We don't expect the consumer to suddenly be in a much better place in the next 12 to 18 months," Laguarta said.
PepsiCo plans to continue focusing on affordable price points and adapting its portfolio to changing consumer tastes. That includes offering more pack sizes and retooling products to contain more protein and fiber, or to remove artificial colors and flavors, Laguarta said.
Those efforts, along with pricing and other investments, are weighing on margins. PepsiCo cut its full-year adjusted earnings outlook to growth of between 1% and 2%, from a previous forecast of 4% to 6%. The company narrowed its organic revenue outlook to growth of roughly 3%, compared with its previous view of 2% to 4%.
The weaker outlook came as PepsiCo posted higher profit and revenue in its latest quarter, boosted by continued strength across its international business.
The company posted a profit of $3.05 billion, or $2.23 a share, for the third quarter ended Sept. 5, compared with $2.6 billion, or $1.90 a share, a year earlier. Excluding one-time items, earnings came to $2.34 a share, ahead of the $2.29 a share analysts surveyed by FactSet had expected.
Net revenue climbed 5.6% to $25.27 billion, also topping Wall Street estimates of $24.95 billion. On an organic basis, revenue rose 3.1%.
Shares ticked up 2.2% to $126.38 in morning trading.