• by Sarah Mahoney , over 1 hour ago

 
PepsiCo’s new earnings report underscores ongoing problems. International sales are strong, but North American consumer demand remains weak. Investor pressure on the company is likely to build.

Third-quarter net revenue rose 5.6% to $25.27 billion, reflecting 3.1% organic revenue growth. Globally, beverages and convenient foods also grew, increasing 8%. The results show plenty of evidence that transformation efforts are paying off.

Newer, healthier products, such as NKD, Doritos Protein, Lay’s Baked with olive oil, Gatorade Lower Sugar with no artificial flavors, sweeteners or colors, and Pepsi Treats zero sugar are performing well. The company is also pleased with its new partnership with Publicis, aimed at transforming its global media model to improve returns on marketing investment.

But once again, North America fell short of expectations. Several factors are driving this lag, including rising GLP-1 use, high snack costs and a growing consumer push against processed foods.

Sales in PepsiCo’s North American food division, which includes brands such as Lay’s, Doritos and Quaker, were flat at $6.5 billion. Sales in its North American beverage division rose to $7.7 billion from $7.3 billion, but most of that growth came from acquisitions.

“We continue to operate with a high sense of urgency to sustainably improve the company’s financial and marketplace performance (most notably in North America),” said Ramon Laguarta, chairman and CEO, in prepared remarks. “We will build on the strength and resilience of the international businesses and aim to sustainably improve the growth trajectory of the North America business – by prioritizing innovation and more effective advertising and marketing.”

Laguarta said U.S. beverages are also a key priority, as the company seeks to “revitalize our performance within the resilient and profitable U.S. carbonated soft drink category – through effective brand communications, more focused innovation and continuous portfolio evolution towards flavors and zero sugar options.”

The company also lowered its earnings forecast, admitting North American growth was taking longer than expected. That’s unlikely to cheer up investors, who have been pushing the company to make structural changes to achieve better growth and profit targets.

An article in Reuters quotes Stephanie Link, chief investment strategist at PepsiCo investor Hightower Advisors, saying Pepsi execs “have not identified a focused path to recovery in the face of the 'changes' that they've made. They were simply too late, and now they have the threat of GLP-1s."

Inflation is also a major factor. The company invested heavily in price cuts this year, lowering some prices by as much as 15%, and those efforts led to higher volume. But manufacturing costs keep rising. Now, Barron’s notes that Pepsi plans low- to mid-single-digit price increases on some snacks later this year or early in the new year to keep pace with inflation.