Food & Beverage PepsiCo cuts earnings forecast as it predicts ‘uncertainty’ in tariffs, consumer spending

 Food & Beverage 

PepsiCo cuts earnings forecast as it predicts ‘uncertainty’ in tariffs, consumer spending

PepsiCo on Thursday reported mixed quarterly results as its international sales offset weaker demand in North America.

The food and beverage giant also cut its forecast for core constant currency earnings per share, citing new tariffs, economic volatility and a more cautious consumer.

CEO Ramon Laguarta said in a statement, "We anticipate more volatility and uncertainty as we look ahead, especially related to global trade developments, which we expect will increase our supply chain costs." "At the same time, consumer conditions are still muted and the outlook is also uncertain in many markets."

In premarket trading, the company's shares dropped 2%.

According to an LSEG survey of analysts, here is how PepsiCo's report contrasted with what Wall Street had anticipated:

Profits per share: $1.48 adjusted vs. $1.49 expected Revenue: $17.92 billion vs. $17.77 billion expected Pepsi reported first-quarter net income attributable to the company of $1.83 billion, or $1.33 per share, down from $2.04 billion, or $1.48 per share, a year earlier. Net sales decreased 1.8% to $17.92 billion, while organic revenue—which excludes acquisitions, divestitures, and foreign exchange—rose 1.2% during the quarter. Pepsi's global volume decreased 3% for its convenient foods unit and remained flat for its drinks.

Laguarta said the company is “taking actions” to improve its North American performance. Its North American beverage unit saw a 3% drop in volume, while its domestic food business saw a 1% decline.

Laguarta and CFO Jamie Caulfield stated in prepared remarks that "consumers have remained value-conscious across brands and channels as the cumulative impacts of inflationary pressures have strained budgets and altered food shopping patterns."

Plans to turn around its North America business include expanding further into multicultural and functional products, like its Simply, Sabra and Siete brands. Additionally, the business recently acquired the prebiotic soda brand Poppi. Additionally, Pepsi intends to expand its protein line in order to attract customers who use GLP-1 medications.

Additionally, Pepsi is speeding up its shift to natural ingredients. Laguarta stated that Lay's and Tostito's will stop using artificial colors by 2026, following the Food and Drug Administration's announcement that it would phase out synthetic dyes by the end of the year.

The U.S. ban on petroleum-based colorants would affect Pepsi products like Flamin’ Hot Cheetos and Mountain Dew Baja Blast, but it is unclear what enforcement actions the agency would take if food and beverage companies do not comply according to its timeline. Pepsi’s overall transition will take longer than the FDA’s schedule, although 60% of its products do not use artificial dyes. “In the next couple of years, we’ll have migrated all the portfolio into natural colors, or at least provide the consumer with natural color options, and obviously, every consumer will have the opportunity to choose what they prefer,” Laguarta said.

Pepsi is also working to improve its in-store product placement and availability, and its North American businesses saw some positive developments: Pepsi Zero Sugar helped the company increase its market share, and snacks like Miss Vickie's chips and Quaker's rice cakes contributed to net revenue growth. Although the company had previously projected mid-single-digit growth, Pepsi now projects its core constant currency earnings per share to be roughly unchanged from the previous year, and it reiterated its outlook for a low-single-digit increase in organic revenue.