Beverage and snack maker PepsiCo announced its third-quarter earnings this morning, dragged down by slow food brand sales as “business disruptions” internationally lowered the company’s organic revenue growth outlook.
“We have a very large productivity set of tools that we’ll keep deploying systematically,” said PepsiCo CEO and chairman Ramon Laguarta during an earnings call today in response to an investor question on long-term growth. “What we want to do is control what we can control, which is clearly a focus on productivity and focusing on the long-term health of our categories.”
PepsiCo reported net revenue was $23.3 billion, compared to $23.4 billion in Q3 2024. Organic revenue growth was 1.3% versus 8.8% in the same period last year. Operating profit was $3.8 billion, slightly lower year-over-year from $4 billion.
Aside from a passing reference by Laguarta that the intent to acquire Siete Foods for $1.2 billion would “hopefully give us another tool to capture both permissible locations and enter meals” sustainably long term, company leadership did not reference the impending deal.
Looking at the company’s food sales categories, the Frito-Lay North America business segment reported $5.8 billion in net revenue, declining minimally from $5.9 billion year-over-year. PepsiCo improved Frito-Lay volumes sequentially and remained “positive” about the long-term trends in its food business, Laguarta said.
“We’ve seen Gen Z snacking patterns and food patterns being in a way that favor the growth of our category. They’re snacking more. They’re eating mini meals versus large meals,” he said.
Laguarta pointed out that the Frito-Lay segment had “three years of outsized growth;” the snack maker had anticipated a “year of normalization,” especially, as inflationary pressures had created more price-conscious consumers.
Further driving down its food sales, Quaker Foods North America also declined to $648 million during the quarter compared to $747 million at the same time last year.
The 13% slide of organic revenue was mostly attributed to the impact of product recalls stemming from a salmonella outbreak last year and the decision to close the Danville, Ill., plant where the outbreak occurred.
Internationally, the company experienced headwinds due to “ongoing geopolitical tensions”; yet, PepsiCo reported a 4% rise in organic revenue growth.
Even though PepsiCo leadership expects inflation to moderate, “certain commodity costs may remain elevated,” management reported in prepared remarks, causing the Purchase, N.Y.-based company to lower its organic revenue forecast to “low single-digit range” for 2024. It had initially expected an increase of 4%.
In PepsiCo Beverages North America segment, revenue was nearly flat year-over-year at $7.1 billion with operating profit down slightly to $914 million versus $970 million in Q3 2023.
Gatorade reported mid-single-digit net revenue growth. The company’s Pepsi Zero Sugar, Propel and bubly brands had all “performed well” and provided double-digit and high-single-digit net revenue growth.
Propel was highlighted as “improving the economics” of PepsiCo’s direct-store delivery system in some places where carbonated soft drink sales were lower.
“We feel good about the trajectory of the business. We feel good about profitable growth. We feel good about how this business can get to a mid-teens operating margin that will be great for PepsiCo and will be great for our beverage business in North America as well,” Laguarta said.
Looking at the energy drink category, Laguarta said that lower consumer traffic in the convenience channel had impacted sales slightly, but he remained optimistic it was part of the economic cycle that would “reverse itself in the future.”