PepsiCo struggles with slower US volumes in Q1 2024, challenges persist in beverage business

For the first quarter of fiscal year 2024, ending March 23, PepsiCo achieved​ $2.04bn in net income, compared to $1.93bn for the same quarter last fiscal year. Also, PepsiCo saw net revenue growth of 2.3%, and earnings per share (EPS) were $1.48, growing 6% in the first quarter.

PepsiCo’s Frito-Lay North America division saw a 2% decline in volume, and Quaker Foods North America dropped 22% due to recalls in the first quarter. At the start of the year, PepsiCo expanded a previous recall of Quaker Oats​ products to include various granola and cereal bars, snack mixes and instant oatmeal due to the risk of salmonella contamination. 

Despite these challenges, PepsiCo reaffirmed its fiscal guidance for 2024, which includes a 4% increase in organic revenue and an 8% increase in core constant currency EPS. Additionally, PepsiCo expects total cash returns to shareholders of approximately $8.2bn, comprised of $7.2bn in dividends and $1bn in share repurchases.

PepsiCo is projecting strong demand for its Frito-Lay products by tapping into snacking occasion trends, Ramon Laguarta, CEO and chairman of PepsiCo, shared during an investors call.  

“Frito-Lay continues to outperform the category, and … the big opportunity for Frito-Lay is continuing to create occasions for our savory category, bringing them from other micro snacks or as snacks and meals overlap,” Laguarta said. 

PepsiCo upbeat on Gatorade and Mountain Dew, Celsius agreement amended PepsiCo is facing challenges to its beverage business, which saw volumes decrease by 5% in the first quarter of 2024, as competition in the energy drink and sports drink category increases.  

Last year, Gatorade lost market share to sports drink brand PRIME,​ which is popular among younger consumers, Laguarta previously shared. However, PepsiCo is “not concerned about Gatorade this year,” given its investment in the brand, including direct-to-consumer offerings, he said.  

“We have the right investments [and] the right commercial programs. … We have learned a lot on how to deal with a very high seasonality product and category and give better service to our customers and maintain the product in stock. We have the platform to take Gatorade into a higher market share in a faster-growing category,” Laguarta explained.

This year, PepsiCo made its fan-favorite Baja Blast flavor a permanent fixture to the Mountain Dew portfolio​, which is helping the company gain share in the soda category, he said. 

“The launch of Baja Blast has been very good to the brand. We launched it as a permanent additional flavor to the portfolio [earlier] in the year. It has been obviously successful. We knew it was a successful LTO, and therefore, it is a successful permanent product. And it is bringing incremental consumers to the brand and helps us gain share. Now, obviously, we will keep investing in the portfolio and the brand, and we have strong programs for the summer. Hopefully, that will deliver as we expect, and we continue to build momentum in the category,” Laguarta added.

Recently, energy drink brand Celsius updated​ its distribution agreement with PepsiCo to create an incentive program for PepsiCo for its support of Celsius. Laguarta did not comment on the specifics of that deal on the investor call, but he reaffirmed the role of the partnership in growing both businesses.

In 2022, Celsius moved its distribution from Anheuser Busch to PepsiCo in North America, which helped boost the company to $1bn brand status​. As part of the deal, PepsiCo also invested $550m in the brand.

“The partnership with Celsius is strong, and it is helping us to gain scale in our go-to-market, specifically in some channels where we need volume to justify some of the economics … so that role continues. We are pleased with the partnership, and energy is a fast-growing category — profitable — that is great for our portfolio. We remain pleased with the partnership, and we will continue to build the partnership going forward,” Laguarta said.