PepsiCo (PEP) Q4 2023 earnings

PepsiCo on Friday reported mixed quarterly results as North American demand for its food and drinks weakened.

CEO Ramon Laguarta said that U.S. sales broadly slowed down in the fourth quarter.

“Part of that is a slowdown due to pricing and [consumers’] disposable income situation,” he told investors on the company’s conference call.

He added that U.S. consumers are also shifting their behavior from eating and drinking at home to picking up more of their snacks and Gatorade from convenience stores. But Laguarta expressed optimism about the overall state of the consumer, citing low unemployment and hopes that interest rates will fall by the summer and wages will rise faster than inflation.

Shares of the company closed Friday down 3.5%.

Here’s what the company reported compared with what Wall Street was expecting, based on a survey of analysts by Refinitiv:

• Earnings per share: $1.78 adjusted vs. $1.72 expected
• Revenue: $27.85 billion vs. $28.4 billion expected

Pepsi reported fourth-quarter net income of $1.3 billion, or 94 cents per share, up from $518 million, or 37 cents per share, a year earlier.

Excluding items, the food and beverage giant earned $1.78 per share.

Net sales dropped less than 1% to $27.85 billion. It’s the first quarter since 2020 that the company’s quarterly revenue has declined compared with the year-ago period. Currency exchange rates dragged net sales down by 1.5%.

Pepsi’s organic revenue, which excludes acquisitions and divestitures, rose 4.5% in the quarter, helped by higher prices. But those same raised prices have hurt demand for the company’s food and drinks. Pepsi’s volume, which strips out pricing and currency changes, slid again this quarter.

PepsiCo executives said high borrowing costs and lower personal savings have squeezed consumers’ budgets, particularly in North America, in prepared remarks released ahead of the company’s conference call. They also said consumers are increasingly choosing smaller pack sizes for convenience and their low price points.

Pepsi’s North American Quaker Foods division reported an 8% decline in volume. A voluntary recall of its granola bars and cereals hurt its sales during the quarter, along with weaker growth for the overall category.

Frito-Lay North America, which includes brands like Cheetos and Doritos, posted a 2% drop in volume.

Pepsi’s North American beverage unit saw its volume fall 6% in the quarter.

For 2024, Pepsi now anticipates organic revenue will rise at least 4% and core constant currency earnings per share will climb at least 8%. The company previously forecast an increase in organic revenue on the high end of 4% to 6% and core constant currency earnings per share growth in the high single digits.

“Consumers are likely to remain watchful with their budgets and choiceful with their purchases,” Pepsi executives said in the prepared remarks.

Pepsi is predicting a weaker first half of the year as product recalls dent its North American Quaker Oats business and international conflicts hurt sales in some regions. Executives are expecting international organic revenue growth to top that of North America for the full year.

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