PepsiCo on Thursday warned of higher commodity costs in the second half of the year, at a time when the snack and beverage giant is increasing investments and lowering prices to attract value-conscious consumers.
Shares of PepsiCo slipped about five per cent after the company kept its forecast intact and reported a two per cent drop in sales in its North American food business.
Food and beverage companies are contending with rising packaging and logistics costs as the Iran war keeps oil prices high, while they face the challenge of tailoring products for health-conscious shoppers seeking better value.
Although PepsiCo is expecting higher input cost inflation in the second half of the year, its CFO, Steve Schmitt, said refund claims for tariffs paid last year and productivity savings should help cushion the hit.
PepsiCo had cut prices on brands such as Lay’s and Doritos by up to 15 per cent in North America to lure back budget-conscious consumers, who are increasingly shifting toward cheaper alternatives and smaller pack sizes amid persistent inflation concerns.
CEO Ramon Laguarta credited portfolio evolution and strength in its international business for higher organic volumes, but said results were tempered by tighter consumer budgets and inflationary pressures. The company said high gas prices had dented consumer demand more than it had anticipated.
PepsiCo is refreshing brands and introducing products without artificial colors or flavors, such as Gatorade Lower Sugar, as well as protein-packed offerings, such as Propel powder and Quaker Protein Rice Crisps, aimed at a growing preference toward healthy diets.
“Pepsi’s challenge isn’t building iconic brands, it’s keeping them relevant,” eMarketer analyst Suzy Davidkhanian said.
“Consumers are still spending, but they’re becoming more intentional about where they spend, and they expect the brands they already know to evolve with them by giving them more choice,” she added.
The company kept its annual forecasts unchanged, expecting fiscal 2026 organic revenue growth in the range of two to four per cent and core constant currency earnings per share to rise between four and six per cent.
“The North America advertising and marketing expense is projected to increase in the second half,” Schmitt said on an analyst call. “So we’re going to continue to play offense.”
Quarterly revenue rose 6.4 per cent to US$24.18 billion from a year earlier, beating analysts’ estimates for a 5.4 per cent increase to $23.95 billion, according to data compiled by LSEG.
PepsiCo posted quarterly core earnings per share of $2.20, compared with $2.12 a year ago.
(Reporting by Anuja Bharat Mistry in Bengaluru and Alexander Marrow in London; Editing by Anil D’Silva)