The world’s second-largest food and beverage company is navigating a tricky market where shoppers are finally pushing back against high prices. On Thursday, PepsiCo (PEP) reported first-quarter results that topped Wall Street estimates, yet its stock struggled to find a clear direction in early trading.
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PepsiCo’s Global Sales Beat Estimates amid North American Struggles
The company’s ability to sell more snacks and sodas in international markets helped balance out a much tougher environment back home.
For the first quarter, the firm posted adjusted earnings of $1.61 per share on revenue of $19.4 billion. These numbers were higher than the $1.54 per share and $18.9 billion in revenue that analysts had expected.
However, the success was lopsided. While international markets remained strong, sales volume in North America dropped as families, especially those with lower incomes, cut back on extra treats. It seems like years of price hikes have finally hit a limit, leading the company to confirm that organic revenue growth for the full year will likely stay between 2% and 4%.
PepsiCo’s Price Cuts Aim to Bring Shoppers Back
Management is now trying a different tactic to get people to pick up a bag of chips or a bottle of soda. Instead of raising prices, the company is looking for ways to make its products more affordable.
CEO Ramon Laguarta announced that the company is slashing prices by up to 15% on certain core brands like Doritos, Lay’s, and Cheetos. This pivot comes after pressure from activist investor Elliott Investment Management, which pushed the company to simplify its business and focus on getting more people to buy its snacks more often. In addition to the price drops, the firm is removing about 20% of its less popular products to focus on its heavy hitters. These affordability initiatives are designed to win back customers who have recently switched to cheaper store-brand alternatives.
PepsiCo Focuses on Healthier Choices
The company is also changing what goes into its snacks to keep up with a public that is increasingly looking for healthier options.
PepsiCo is currently restaging its four biggest global brands—Lay’s, Tostitos, Gatorade, and Quaker—to feature simpler ingredients and less artificial coloring. This move helps the company appeal to health-conscious buyers who have been moving away from sugary drinks and salty snacks. Despite these efforts, the company still faces high costs for packaging and energy, partly due to tension in the Middle East. While management is optimistic about the new strategy, the stock has still lagged behind the broader S&P 500 over the past year.
Is PepsiCo a Buy, Sell, or Hold?
Turning to TipRanks, Wall Street has a Moderate Buy consensus rating on PepsiCo stock (PEP) based on seven Buys and eight Holds. The average 12-month PEP stock price target of $172.93 indicates 11.7% upside potential.
