PepsiCo signals demand hit from price hikes with rare sales decline

PepsiCo reported a surprise drop in quarterly sales and forecast a sharp slowdown in organic revenue growth for 2024, in signs that multiple price hikes could be weighing on demand for its beverages and Lay’s crisps.

The company’s shares were down about 2% before the bell on Friday.

PepsiCo shielded its margins by passing on higher production costs to its customers for almost two years, but now faces slowing demand even for sodas and snacks tagged as “affordable luxuries.”

In January, Carrefour, Europe’s largest food retailer, asserted it would not be stocking PepsiCo’s brands “due to unacceptable price increases”.

PepsiCo’s fourth-quarter revenue fell 0.5% to $27.85 billion, the first drop in 14 quarters.

Analysts had expected a 1.4% rise to $28.40 billion, according to LSEG data.

The number of units sold by the company’s beverage business in the US fell 8% in November and was down 7% in October and December, according to YipitData.

Average prices jumped 9% in the quarter ended Dec. 30, PepsiCo said, while organic volume slipped 4%.

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“The volumes again are not kind of performing they are not getting the improvement in tandem with the moderating levels of pricing that is likely going to be a headwind for them over the near term,” Wedbush analyst Gerald Pascarelli said.

The soda and snacks giant’s forecast annual organic revenue growth of at least 4%, compared to the 9.5% growth reported for fiscal 2023.

“Category growth rates are normalizing as consumer behaviors largely revert to pre-pandemic norms and net revenue realization moderates as inflationary pressures are expected to abate,” CEO Ramon Laguarta said in a statement.

Still, PepsiCo beat fourth-quarter profit expectations and forecast annual core profit slightly above estimates, betting on easing input and freight costs.

PepsiCo expects fiscal 2024 core earnings per share of $8.15, compared with expectations of $8.14 and announced a 7% increase to its annual dividend.

Excluding items, the company earned $1.78 per share, beating estimates of $1.72.