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PepsiCo Plans Price Cuts as Demand Slips for Drinks, Snacks
Company Reports 5.6% Increase in Q4 Revenue to $29.3 Billion
Key Takeaways:
- PepsiCo reported Q4 revenue up 5.6% to $29.3 billion as it announced plans to cut prices on major snack brands to counter weakening demand.
- The company said rising packaging, ingredient and transportation costs drove years of price hikes that boosted revenue but reduced volumes in key food and beverage segments.
- PepsiCo plans to trim its product lineup and roll out new lower-sugar and simpler-ingredient offerings this year as part of changes pushed by investor Elliott.
PURCHASE, N.Y. — PepsiCo is cutting prices on Lay's, Doritos, Cheetos and Tostitos chips this year to win back customers exasperated by years of price hikes.
PepsiCo has leaned on price increases as the cost of packaging, ingredients and transportation rose, but it has cost the company in volume. In the fourth quarter, PepsiCo hiked prices by 4.5% globally. Prices for PepsiCo beverages rose 7% in North America, while prices for the company’s snacks ticked up 1%.
That has pumped up revenue, including in the most recent quarter, which rose 5.6% to $29.3 billion in the October-December period, it reported Feb. 3. That was higher than the $28.9 billion Wall Street was expecting, according to analysts polled by FactSet.
But the price hikes have also weakened demand, and consumers have begun swapping out brands they are familiar with for cheaper versions, or they're cutting back.
Volumes for PepsiCo snacks like Doritos and Cheetos fell 1% in the most recent quarter. North American beverage volumes dropped 4%. Globally, PepsiCo said beverage volumes rose 1% while food volumes fell 2%.
PepsiCo said in December that it planned to cut prices and trim nearly 20% of its product offerings as part of a deal with activist investor Elliott Investment Management.
Elliott, which took a $4 billion stake in PepsiCo in September, has been prodding the company’s board to make changes, saying PepsiCo was being hurt by slowing growth and lower profits in its North American food and beverage business.
In addition to price cuts, PepsiCo plans to accelerate the introduction of new offerings with simpler and more functional ingredients, including Gatorade Lower Sugar and Simply NKD Cheetos and Doritos, which contain no artificial flavors or colors.
Transport Topics reporters Eugene Mulero and Keiron Greenhalgh examine the critical trends that will define freight transportation in the year ahead. Tune in above or by going to RoadSigns.ttnews.com.
The company also recently introduced Pepsi Prebiotic, which it said sold out within 30 hours after its introduction on Black Friday. PepsiCo said the soda will soon be available across the U.S.
Adjusted for one-time items, PepsiCo earned $2.26 per share in the fourth quarter. That was also higher than analysts expected. Net income attributable to the company of $2.54 billion, or $1.85 per share, is up from $1.52 billion, or $1.11 per share, during the same period last year.
PepsiCo ranks No. 2 on the Transport Topics Top 100 list of the largest private carriers in North America. PepsiCo Foods North America ranks No. 4 on the top food service carriers list, and PepsiCo Beverages North America ranks No. 1 on the top beverage carriers list.
