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PepsiCo snack rebound stalls in second quarter
Beverage and snack maker cites gas prices as primary reason
PepsiCo's Doritos chips. (Sergio Flores/Bloomberg)
Key Takeaways:
- PepsiCo said July 9 that higher gas prices caused consumers to pull back in the second quarter, slowing its North American snack turnaround.
- North American food revenue fell 2% despite price cuts of up to 15%, and shares dropped as much as 5.5%.
- PepsiCo reaffirmed fiscal 2026 guidance and said lower prices should gradually help performance improve later this year.
PepsiCo Inc. said consumers pulled back in the second quarter as gas prices rose, slowing its efforts to revitalize its North American snack business.
The maker of Doritos, Lay’s and Gatorade saw a 2% decline in revenue in its North American food business and flat volume after taking action earlier this year to cut prices by as much as 15% in some brands.
“The consumer is worse than what we had anticipated, and it’s driven mainly by gas prices,” CEO Ramon Laguarta said on a call with analysts July 9. Laguarta said consumers were pulling back more than the company had expected at convenience stores and other places where people make impulse purchases because of the higher gas prices.
Shares of PepsiCo fell as much as 5.5% on July 9 in New York. The stock has slipped about 1% so far this year through the close of July 8, compared with a 9.3% increase in the S&P 500 Index.
PepsiCo ranks No. 2 on the Transport Topics Top 100 list of the largest private carriers in North America.
PepsiCo has been working to boost sales of its salty snacks and saw signs of an initial rebound earlier this year after slashing prices by up to 15% in medium-size bags to win back pressured consumers. But that momentum slowed in the second quarter.
“While there have been some signs of progress, rate of improvement has stalled given the inflationary pressures, challenging consumer’s value equations,” Nik Modi, co-head of global consumer and retail research at RBC Capital Markets, said in a note. He also said he expects PepsiCo will continue to cede market share in beverages to rivals Coca-Cola Co. and Keurig Dr Pepper.
Keurig Dr Pepper ranks No. 12 on the private TT100.
The company reaffirmed its guidance for fiscal 2026 and said it expected its lower prices would gradually help its turnaround efforts later in the year.
“Our North America business was softer than we anticipated in the second quarter, and we now expect a more gradual improvement in performance trends for the balance of this year,” Chief Financial Officer Steve Schmitt said in prepared remarks.
Gas prices in the U.S. have surged above $4 per gallon due to the ongoing conflict in Iran.
RELATED: Shaky U.S.-Iran ceasefire renews anxiety over fuel prices
Laguarta said the company was tweaking some of its price reductions, based on differences in how varying segments of the U.S. population shops. He also said the company had seen some delays in getting more shelf space back at retailers under agreements reached as part of PepsiCo’s decision to lower prices on medium-size bags.
Recently, it has raised prices on some smaller bags. The company also rolled out more products higher in protein and fiber as it grapples with consumers’ shifting preferences for healthier, less processed foods. Laguarta said the healthier offerings were doing “very well” and that PepsiCo had also seen both volume and revenue growth in multipacks of smaller, portion-controlled snacks.
PepsiCo posted adjusted earnings per share, a measure of profitability that strips out some one-time costs, of $2.20 for the quarter, slightly above the average analyst estimate.
