PepsiCo to cut costs as weak N.America business hurts core profit forecast
FILE PHOTO: Bottles of Pepsi are displayed on a shelf in a supermarket in Sarajevo, Bosnia and Herzegovina October 29, 2024. REUTERS/Dado Ruvic/File Photo
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Oct 8 : PepsiCo cut its annual core profit forecast on Thursday and said it would pursue additional cost cuts, warning that efforts to revive growth and profitability in its crucial North American business were taking longer than expected.
This highlights a broader challenge in the packaged food industry, where companies such as General Mills, McCormick and Conagra Brands are spending more on promotions and affordability initiatives to revive demand while contending with higher input costs.
“Additional structural cost reduction actions are being identified and will be implemented in the coming months to help fund investments that aim to accelerate organic revenue growth and mitigate the impacts of rising input cost inflation,” PepsiCo CEO Ramon Laguarta said in a statement.
PepsiCo has been battling weakness in its North America business. Foods segment volumes were flat in the third quarter ended September 5, while in beverages, it dipped 2 per cent from a year ago.
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The region has been a pain point for the company despite its efforts to cut prices by up to 15 per cent on products such as Lay’s and Doritos in February.
Last month, PepsiCo said it would raise prices on some U.S. products to offset rising costs and improve profitability in North America, where margins have been hit by affordability initiatives, higher marketing spending and weak demand.
The company has been under pressure to reinvigorate its soda business, boost its share price and explore selling non-core food assets since activist investor Elliott Investment Management disclosed a roughly $4 billion stake last year.
After discussions with Elliott, PepsiCo said in December it would review its North American supply chain and pursue aggressive cost-cutting measures.
“In North America, we remain committed to improving growth and core operating margin. However, it is taking more time than we planned,” said PepsiCo CFO Steve Schmitt in prepared remarks.
Shares of the company were up about 1 per cent in premarket trading.
The company expects fiscal 2026 core earnings per share after adjusting for currency fluctuations to rise 1 per cent to 2 per cent, compared with its prior forecast of low-end of 4 per cent to 6 per cent rise.
It also expects annual organic revenue to be up about 3 per cent, compared with the prior forecast of between 2 per cent and 4 per cent.
However, its quarterly revenue rose 5.6 per cent to $25.27 billion, compared with analysts’ estimate of $24.96 billion, according to data compiled by LSEG. Its quarterly core earnings per share of $2.34 exceeded estimates of $2.29.
Source: Reuters
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