PepsiCo reported flat net revenue growth amid continuing volume declines across the company’s snack and beverage portfolio in FY 2023.
The food and beverage giant reported Q4 2023 net revenue dipped slightly by -0.5% to $27.8 billion. For FY2023, net revenue was $91.4 billion, increasing nearly 6% compared to FY2022. Organic revenue growth in Q4 was 4.5% and 9.5% in FY2023 to few divestitures or acquisitions across the company’s operations.
PepsiCo’s North American business struggled over FY2023 with operating profits falling by -19% for Quaker Foods due to a health recall dramatically reflected in Q4 profits (-79%). Beverages North America profits were down -52%, due in part to the termination of its distribution contract with Bang Energy brand costing around $160 million. Frito-Lay posted full-year profit growth of 10% thanks to aggressive pricing measures.
Last year, PepsiCo had to raise prices above the normal pricing levels for the category, about 2% to 3%, according to chairman and CEO Ramon Laguarta, to keep up with higher commodity and operation costs. The company expects “more of a balance between pricing and volume” in 2024 as it targets profitable volume growth.
Volumes were still down nearly across category segments with FY2023 declines most acute in Quaker Foods (-8%) and Beverages North America (-6%). In total, volume change was down -3% in food and -2% in beverage.
“Category growth rates are normalizing as consumer behaviors largely revert to pre-pandemic norms and net revenue realization moderates as inflationary pressures are expected to abate,” Laguarta said in prepared remarks.
The company lowered its 2024 guidance, expecting 4% increase in organic net revenue and at least 8% growth in core constant currency EPS.
Along with the Quaker recall continuing to drag down organic sales growth through the first half of FY2024 as it repairs its supply chain, “we’re seeing a bit of a slowdown in the U.S. in both the food category and the beverage category,” Laguarta reported in the question-and-answer portion. “Part of that is a slowdown due to pricing and disposable income. And part of that is people changing between in-home consumption and away-from-home consumption.”
Frito-Lay is expected to “go back to profitable volume growth in 2024,” he added, as PepsiCo invests in marketing to meet consumers away-from-home in convenience and grocery channels.
Net revenue for Frito-Lay North America was $7.4 billion in Q4, versus $7.7 billion in the same period last year.
Despite macro-economic challenges globally (hyperinflation in Argentina and the war in Ukraine), the company was optimistic that its international business will grow faster than its U.S. business. Laguarta said Pepsi would aggressively support that growth with investments in productivity systems.
In its Beverages North America division, leadership affirmed its confidence in its various drink brands citing positive signs from its Pepsi rebrand and developing its Gatorade brand from its historical identity as a sports drink into “an ecosystem of solutions in hydration and fuel for every type of active person,” Laguarta said.PepsiCo leadership also highlighted how the company is putting resources towards its energy portfolio and growing consumer penetration and adoption for the Rockstar brand with a focus towards the Latinx community. It is also prioritizing the “energy with functionality” innovation as well as the Rockstar Zero and Rockstar Recovery.