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High inflation and the rise of weight loss drugs have yet to pop PepsiCo’s bubble, but declining sales and changing consumer demands are slimming some of the company’s offerings.
The food and beverage manufacturer reported net revenue growth of 6.7% for the third quarter, beating analysts’ expectations, and revised its full year guidance for core earnings per share upward, from 12% to 13%. It also released fairly optimistic predictions for 2024, stating it expected results toward the upper end of its target range for both organic revenue growth and earnings per share growth.
However, the company’s global sales volume was down 2.5% for the quarter, and volume for North American beverages was down 6%. The company raised prices to keep pace with inflation and higher commodity prices, which likely affected volume. Pepsi raised prices 11% from July through September, its seventh straight quarter of double-digit price increases.
The company says price increases will continue into 2024. It expects inflation to stay above pre-pandemic levels of 2%–3%, and “our pricing will be roughly in line with inflation,” vice-chairman and CFO Hugh Johnston said during a Q&A session following Tuesday’s earnings call.
Pepsi has responded to declines in sales volume by decreasing portion size and shrinking value packs, making them more affordable. “Units are growing much faster than volume,” chairman and CEO Ramon Laguarta said.
The company has seen signs that consumers aren’t under that much financial strain yet, Johnston said. Revenues for foodservice and convenience stores, which both suffer when consumers are stressed, are both up, he said.
Weight loss drugs not yet a concern: Analysts have pondered the impact of GLP-1 weight loss drugs like Wegovy and Ozempic, which suppress appetite, on food manufacturers. An estimated 24 million people, or almost 7% of the US population, could be taking the drugs by 2035, Morgan Stanley said. The drugs can cause people to consume up to 30% fewer calories.
After Walmart president and CEO John Furner told Bloomberg that customers taking the drugs were buying less food and food with fewer calories, shares of both Pepsi and Coke dropped, MarketWatch reported.
But PepsiCo executives aren’t that concerned. “So far, the impact is negligible in our business,” Laguarta said.
“We don’t see any impact in our numbers right now,” Johnston told the Wall Street Journal. “Our belief is that if there is adoption of these products, that will happen slowly and over a long period of time.”
Pepsi is also reducing portion sizes and the fat, sodium, and sugar content of its products in response to consumer demand for healthier foods, according to Laguarta. This move toward more nutritious options is “one of our key strategic pillars,” he said.