PepsiCo Faces Sales Decline Amidst Pricing Pressure


PepsiCo (NASDAQ:PEP) shocked investors with a downturn in quarterly sales and anticipated a significant deceleration in organic revenue growth for 2024, citing the impact of multiple price increases on demand for its beverages and snacks. Consequently, the company’s shares dropped by as much as 4%.

The company highlighted a decline in demand, particularly in the U.S., where consumers are showing resistance to higher prices for sodas and snacks following two years of PepsiCo passing on increased production costs to customers to maintain margins.

CEO Ramon Laguarta acknowledged the slowdown in the U.S., noting that both food and beverage segments experienced deceleration in the fourth quarter, partly due to pricing adjustments and tighter household budgets.

In January, Carrefour (CARR.PA), Europe’s largest food retailer, announced it would not stock PepsiCo’s brands due to “unacceptable price increases.”

PepsiCo reported a 0.5% decrease in fourth-quarter revenue to $27.85 billion, marking the first decline in 14 quarters. Analysts had expected a 1.4% increase to $28.40 billion.

Investors had high expectations for PepsiCo’s performance, but according to Don Nesbitt, portfolio manager at ZCM, the company was unable to pass through as much pricing as in the past.

The company projected annual organic revenue growth of at least 4%, significantly lower than the 9.5% growth reported for fiscal 2023. However, fiscal 2024 core earnings per share are expected to be $8.15, slightly higher than expectations.

PepsiCo anticipates a moderation in raw material costs from levels seen in fiscal 2023. Additionally, it announced a 7% increase in its annual dividend.

In the fourth quarter, core gross margin expanded by 97 basis points as average prices increased by 9%. However, organic volume declined by 4%.

Wedbush analyst Gerald Pascarelli noted that the volumes are not improving in line with moderating pricing levels, which could pose a near-term challenge for PepsiCo.

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