PepsiCo joined the chorus of consumer products companies reporting weak sales for the first quarter amid a pullback in consumer spending across almost every market segment. Its shares lost ground on Wall Street while the rest of the market rallied.
Net income was $1.83 million, down from $2.04 million a year ago.
That’s due to weakness across almost every geographic market segment caused by subdued consumer demand, which is partially mitigated by currency translation and price hikes.
For instance, Latin American sales were down 12 percent, reflecting a 0.5 percent decline in the volume of convenience foods.
Likewise, Europe, the Middle East, and Africa declined by 2 percent, reflecting a 9 percent decline in the volume of convenient foods and a 4 percent decline in the volume of beverages, respectively.
Sales were also weak in the company’s home market, with North American sales down 1 percent, primarily due to the lackluster performance of Frito-Lay North America.
During the conference call following the release of the company’s financial results, management attributed this performance to consumer uncertainty.
“Revenue management easily is becoming more complex as consumers are feeling more challenged with their disposable income,” said PepsiCo CEO Ramon LaGuarta. “And that obviously is different for different income levels across the American consumer. Now what we’re seeing is that consumers are giving a lot of value to absolute dollars.”
For 2025, Pepsi expects a low-single-digit increase in organic revenue amid elevated macroeconomic volatility, a subdued consumer backdrop, and a foreign exchange translation headwind of approximately three percentage points.
“Our businesses remained resilient in the midst of increasingly dynamic and complex geopolitical and macroeconomic conditions in the first quarter. As we look ahead, we expect more volatility and uncertainty, particularly related to global trade developments, which we expect will increase our supply chain costs. At the same time, consumer conditions in many markets remain subdued and similarly have an uncertain outlook,” Laguarta said.
Despite these headwinds, the company continues to focus on maintaining low single-digit organic revenue growth and monetizing its international portfolio.
“International business continues to be the largest growth engine for the company.” CFO Jamie Caulfield said, highlighting the company’s commitment to sustainable growth.
Pepsi isn’t the only consumer products company reporting weak sales due to a shortfall in consumer spending and currency translation. Procter & Gamble and Kimberly-Clark reported similar results this week.
However, Pepsi’s sales weakness extends beyond the recent unfavorable macroeconomic conditions to growing competition from new entrants to the market like Red Bull and Celsius, and a growing campaign against snacks following the introduction of anti-obesity drugs.
Wall Street has noticed that investors are steering away from the stock, which has declined 24.1 percent over the past 12 months, underperforming the S&P 500, which has been up 7.86 percent.
That means the company may have to devise a “creative destruction” plan to align its core capabilities with the changing consumer landscape.
That would include expanding PepsiCo’s strategic agenda to develop new product categories, including both traditional sugar-containing beverages and sugar-free drinks.
The new product diversification addresses the preferences of a new generation of consumers concerned about the health consequences of sugar, an area where Pepsi has been losing sales to upstart companies.
Meanwhile, the company is actively planning mitigation actions to address these higher supply chain costs.
“Accordingly, we will continue building upon the successful long-term expansion of our international business while also taking actions to improve performance in North America,” Laguarta said. “Our multi-year productivity initiatives will help fund disciplined commercial investments and aid our profitability.”
Pepsi’s shares closed 4.89 percent lower on April 24.
