PepsiCo (PEP) shares rose almost 2% in pre-market trading after the snack and beverage giant posted better-than-expected second-quarter earnings. The company posted adjusted earnings of $2.12 per share, surpassing the expected $2.03. Meanwhile, revenue also came in ahead of estimates, reaching $22.73 billion compared to the forecasted $22.27 billion.
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PepsiCo Faces Softer Demand
PepsiCo is facing weaker demand for its products. Globally, sales volume dropped 1.5% for its food and stayed flat for its drinks. This measure doesn’t include the effects of price changes or currency shifts.
In North America, the food segment, which includes Frito-Lay and Quaker Foods, saw a 1% drop in volume. The drinks segment in the U.S. did even worse, with a 2% decline in volume.
But It’s Prepared
The decline was largely driven by consumers pulling back due to higher prices and shifting preferences. PepsiCo, like its rival Coca-Cola (KO), is adjusting to changing consumer preferences by offering healthier drinks and snacks. This includes adding options like Poppi, a prebiotic soda brand it recently bought, and launching new flavors of popular snacks like Lay’s and Doritos.
The company is also introducing more budget-friendly products to attract price-sensitive shoppers. This shift comes after several years of price hikes aimed at protecting profit margins.
Looking ahead, PepsiCo reaffirmed its full-year guidance, expecting flat core earnings (at constant currency) and low-single-digit growth in organic revenue. The company’s EPS outlook has improved as the impact of foreign exchange has eased, thanks to a weaker U.S. dollar.
Is PepsiCo a Good Stock to Buy?
Turning to Wall Street, analysts have a Hold consensus rating on PEP stock based on three Buys and 10 Holds assigned in the past three months. At $146.50, the average PEP price target implies an 8.24% upside potential.
