By W. G. S. D. Wijesinghe, Jadetimes news
PepsiCo's second quarter revenue missed analysts expectations on Thursday, primarily due to slowing sales of snacks and sodas in the United States, its largest market. The company has faced challenges from a series of price increases and heightened competition from private label brands. Analysts have noted that while product prices are beginning to stabilize after nearly two years of hikes, they remain above pre pandemic levels. This situation limits the ability of packaged food companies like PepsiCo to further raise prices as sales volumes decline.
Impact on Key Business Segments
PepsiCo increased the average prices of its products by 5% for the quarter ended June 15, consistent with the first quarter. However, this led to a 3% decline in overall organic volumes. Data from NielsenIQ indicated that sales at Frito Lay North America, PepsiCo's snacking division responsible for brands like Lay's and Doritos, fell by nearly 1.3% in the four weeks ending June 15. In comparison, the overall salty snacks category in the U.S. experienced a smaller 0.7% decline. Frito Lay North America, which contributed approximately 27% to PepsiCo's total revenue in fiscal 2023, is the company's second largest business segment, following the North America beverages unit, which accounted for about 30% of overall sales.
Financial Performance and Market Reaction
PepsiCo's shares dropped 2.2% in premarket trading following the revenue miss. Despite this, the easing of production and other expenses from pandemic peaks has provided some cost relief for the company. This, combined with the impact of price hikes, resulted in a 120 basis point increase in second quarter gross margins. The company's revenue rose by 0.8% to $22.50 billion for the quarter, falling short of the $22.57 billion estimated by analysts according to LSEG data. On an adjusted basis, PepsiCo reported earnings of $2.28 per share, surpassing the estimated $2.16 per share.
