PepsiCo lowered its full-year earnings forecast this morning, citing declining consumer confidence and tariff-induced increases in supply chain costs as major hurdles to growth.
The beverage and snack giant is ”actively planning mitigation actions” to address those spiraling costs, said Pepsi’s CEO Ramon Laguarta, but it is now projecting an annual decline of 3% in core earnings per share. Nearly all Pepsi and Mountain Dew brand drinks are made with concentrate manufactured in Ireland, which is now subject to a 10% import tax, he noted.
“We are actively planning mitigation actions to address these higher supply chain costs where possible, while at the same time being conscious to minimize disruption to our operations, our consumer and customer relationships, and the long-term health of our business,” said Laguarta. “Accordingly, we will continue building upon the successful long-term expansion of our international business, while also taking actions to improve performance in North America.”
The company delivered 1.2% organic revenue growth in the quarter, driven by 5% growth in its international business.
Pepsi Beverages North America (PBNA) reported a 3% volume drop, with organic revenue rising 1%. The company highlighted zero sugar, functional hydration and sports nutrition as growth spots, with “zero” products from Pepsi and Gatorade helping those brands gain share in CSDs and sports drinks, respectively.
Citing improving margins and further growth in powders, tablets and drink enhancers, Laguarta said Pepsi is “feeling good about our beverage business in North America.”
Elsewhere, PepsiCo Foods North America (PFNA) saw organic revenue fall 2% during Q1, with dips in savory snacks (Frito Lay) partially offset by other food brands like Quaker. With consumers increasingly value conscious, the company plans to jumpstart growth through more marketing and by scaling brand platforms like Simply, Siete and Sabra that represent “under‐penetrated consumer opportunities.”
The quarter ended with no further indication of how Alani Nu, now a part of Celsius, may potentially fit into Pepsi’s distribution system. Laguarta said Pepsi was in “early discussions” with Celsius “about how we can find ways to participate or not in this new acquisition.”
Laguarta also commented on the federal government’s shifting public health priorities, starting with the movement to restrict or ban certain ingredients and additives. To that end, both Lays and Tostitos will cease using artificial colors by the end of the year, he said.
“Ideally, we obviously stand by the science and our products are very safe and there’s nothing to worry about this, but we understand that there’s going to be probably a consumer demand for more natural ingredients, and we’re going to be accelerating that transition.”
As for the proposed removal of soda and candy from SNAP food assistance benefits, Laguarta said the impact on Pepsi’s business would be “very limited… as we are calculating today,” adding that the company would need to “see how the eventual legislation gets implemented.”