PepsiCo lowers full-year guidance on Q3 2024 results, North American business continues volume declines

Following trends of recent quarters, PepsiCo's volumes declined across its core North American businesses for the third quarter, ending Sept. 7, 2024. PepsiCo's Frito-Lay North America volumes declined 1.5% — the smallest decline since Q3 2023 — while PepsiCo Beverages North America dipped 3%, the same percentage as the previous quarter.

Additionally, PepsiCo’s Quaker Food North America business is still impacted by a recall ​initiated last year, with volumes dropping 13% for the quarter, an improvement from the 17% decline in volume from the previous quarter.

PepsiCo’s international business did not fare better, with volume declines across international markets. Volumes dipped 2% for PepsiCo's convenient foods business and 1% for its Latin America business for the quarter. Similarly, the food and beverage business decline by 3% and 2%, respectively, for its Africa, Middle East and South Asia businesses.

However, PepsiCo's Europe and Asia Pacific, Australia and New Zealand and China region convenient food businesses grew 1% each, while beverages were flat and down 3%, respectively, for the business segments.

“Our businesses remained resilient in the third quarter, despite subdued category performance trends in North America, the continued impacts related to certain recalls at Quaker Foods North America and business disruptions due to rising geopolitical tensions in certain international markets. Strong cost controls aided our profitability, as we made incremental investments to improve our marketplace competitiveness,” said PepsiCo Chairman and CEO Ramon Laguarta in a press release​.

Frito-Lay North America Business’s volumes ‘improved sequentially,’ boosted by promotions

Despite the volume dip, the Frito-Lay North America business’ volume “improved sequentially,” the company shared in prepared remarks​. Moving forward, “potato chips will continue to be a big driver of the growth,” with lightly salted and baked options growing as consumers demand healthier and better-for-you options, Laguarta shared on an investor call.

Earlier this month, PepsiCo agreed to acquire Siete Food for $1 billion, Bakery & Snacks previously reported​. If approved, the Siete acquisition will become “another leg” in its portfolio of permissible snacks alongside Popcorners, Sun Chips and Simply, Laguarta noted.

PepsiCo's investment in commercial activities — discussed in the company’s Q2 2024 earning call​ — spurred growth in Frito-Lay North America business, as the company tees up more engagements around football season and seasonal gatherings.   

“We feel good about the investments that we [made] this summer, mostly behind the potato chips category and Lay’s that drove growth in the potato chips business. Lay’s gained three points of household penetration, and we feel good about that return. Now, we are going to apply that sequentially to other categories. We will use the fall [and] the winter season to put more investments behind Doritos and Tostitos,” Laguarta elaborated.

Beverage business: Propel grows by double digits, C-store drags down energy drinks

In its beverage business, Gatorade's market share in the sports drinks category is rebounding, as PepsiCo transforms the portfolio, Laguarta explained.

Gatorade entered into more categories in recent years to better address consumer demands, including energy and hydration. Most recently, PepsiCo released Gatorade Hydration Boosters​ to grow in the burgeoning enhancer category, as consumers seek simple ways to improve their hydration levels.

“We learned last year, and we have executed better this year. I am sure that if you ask our customers, they would still think that we have ways to improve, and I would agree. So, our service levels have improved meaningfully but still, opportunities will get better,” Laguarta noted.

He added, “The one brand that is performing beautifully for us is Propel, and Propel is part of ... this transformation. Propel is growing [by] double digits [and] is fulfilling some great spaces for consumers complementary to Gatorade.”   

However, consumers are pulling back on convenience store spending, having a knock-on effect on PepsiCo's energy-drink brands, including Rockstar and its strategic partnership with Celsius.

“The energy category in the US is clearly being impacted by the traffic in convenience stores, and traffic in convenience stores has gone down. It has been going down. It is part of the economic cycle that we are in, and that will reverse itself in the future, once consumers feel better,” Laguarta said.  

‘We do not think our category will grow at 1% long term’

For the quarter, net revenues declined by 0.6% against 0.7% net revenue growth for the year to date, and organic revenue growth came in at 1.3%, compared to 1.9% for the year to date.

In addition to investing in commercial activities, PepsiCo continues its digitization efforts, which will help the company grow and maintain profitability in the future.

“We have invested a lot in data and organizing our data in a way that now we can deploy digitalization at scale throughout the value chain. So, from the way we procure to the way we run our factories to our transportation, ... we are really digitalizing the company, and that will generate growth and productivity as well,” Laguarta said.  

Later in the call, he added, “We do not think our category will grow at 1% long term. We think our category, with investments that we are putting back into the business, and the help of our brands and the innovation that we have in place for this year and next year will deliver much more than 1%."  

PepsiCo’s stock jumped on the quarterly results, up approximately 0.60-1.25% from the previous day as of press time.