PepsiCo on Thursday reported quarterly earnings and revenue that beat analysts’ expectations, as international growth offset another quarter of declining volume in North America.
Shares rose 1% in premarket trading.
Here’s what the company reported for its fiscal third quarter compared with what Wall Street was expecting, based on a survey of analysts by LSEG:
- Earnings per share: $2.29 adjusted vs. $2.26 expected
- Revenue: $23.94 billion vs. $23.83 billion expected
Pepsi reported third-quarter net income attributable to the company of $2.6 billion, or $1.90 per share, down from $2.93 billion, or $2.13 per share, a year earlier.
Excluding restructuring and impairment charges and other items, the company earned $2.29 per share.
Net sales rose 2.6% to $23.94 billion. Stripping out acquisitions, divestitures and foreign exchange, Pepsi’s organic revenue increased 1.3% in the quarter.
However, the Frito-Lay and Gatorade owner is still seeing softer demand for its products. Pepsi’s worldwide volume for both food and drinks fell 1% during the quarter. The metric strips out pricing and foreign exchange changes.
CEO Ramon Laguarta said on the company’s conference call that volume was also softer as the company shifts to smaller packaging sizing to appeal to price-conscious consumers. While that shift hurts volume, it lifts revenue.
In particular, Pepsi has struggled in its home market in recent quarters, leading the company to invest back into its brands and to explore cost-cutting measures.
“We also expect our North America business to deliver improved growth and profitability trends as we aggressively reduce costs, accelerate innovation and further sharpen our price pack architecture initiatives,” executives said in prepared remarks.
Pepsi Foods North America, which includes brands like Doritos, Quaker Oats and Pearl Milling, reported that its volume fell 4% in the fiscal third quarter. The company has been investing in more “permissible” snack offerings, like Stacy’s pita chips and Quaker rice cakes. It has more snack options on the way, like Doritos Protein, which aims to cash in on a consumer shift toward protein-rich foods.
Pepsi also unveiled new packaging for Lay’s potato chips that highlighted its lack of artificial colors and flavors, and pledged to launch Doritos and Cheetos “NKD,” which will not use synthetic dyes or flavors. Pepsi and other brands have moved to cut out those ingredients in part due to pressure from the Trump administration.
Likewise, Pepsi is planning to use more olive and avocado oils in its snacks; the “Make America Healthy Again” movement has villainized canola oil and other seed oils, despite a lack of scientific evidence.
The company has also been trying to attract price-conscious consumers by making its multipacks and single-serving snacks cheaper.
Improving the performance of the North American food segment “is a top priority for the business,” executives said in prepared remarks.
Pepsi’s North American beverage unit saw volume shrink 3%, although Laguarta noted “improved momentum” in the business. The company’s namesake soda grew both volume and revenue in the quarter, while new acquisition Poppi has seen its year-to-date retail sales climb more than 50% compared with the year-ago period, executives said.
In September, Pepsi divested its ownership of Rockstar Energy in the U.S. and Canada to rival energy drink maker Celsius. The beverage giant owns an 11% stake in Celsius.
That same month, activist investor Elliott Investment Management unveiled a $4 billion stake in Pepsi. In a presentation and letter sent to the company’s board, Elliott pushed for a number of changes, including potentially refranchising its North American bottling network and reinvesting back into its soda brands. Laguarta said on the company’s conference call that both Pepsi and Elliott share the belief that the company is undervalued.
“We’re going to have conversations in the coming weeks and months,” Laguarta said.
The company also reiterated its full-year outlook. It still expects its core constant currency earnings per share to be roughly unchanged from the prior year and organic revenue to grow by a low single-digit percentage.
Pepsi also announced on Thursday that Chief Financial Officer Jamie Caulfield plans to retire. Walmart U.S. CFO Steve Schmitt will succeed him, effective Nov. 10.
