PepsiCo's (PEP, Financial) first quarter results showed significant improvement across the board compared to the fourth quarter, with a notable earnings beat, revenue growth, and maintained FY24 targets despite previous concerns. However, the continued trend of weak volumes, marking the fourth consecutive quarter, left investors unenthused, resulting in flat share performance today.
The company's volume growth has been hampered by a normalization in category growth rates post-pandemic and a significant recall at Quaker Foods, which saw a 22% year-over-year decrease in volume. This issue contributed to a slight 0.5% decrease in overall volume for the quarter. Despite this, a 5% decline in Beverages North America volume, marking the sixth consecutive drop, has particularly disappointed investors.
Highlights from PepsiCo's Q1 performance include:
- A return to positive growth with a 2.3% year-over-year increase in revenue, totaling $18.25 billion.
- Organic revenue growth of 2.7%, despite challenges, keeping the company on track for its +4% organic sales growth target for FY24.
- The 13th consecutive earnings beat, with a slight improvement in core operating margins due to moderating commodity costs and price increases.
- Continued challenges with balancing price hikes and volume, especially in the Frito-Lay North America and Beverages North America segments.
- Volume growth in Convenient Foods and Beverages outside North America, with mixed results in Latin America.
Following a tepid Q4, PepsiCo's Q1 results signal a year of gradual growth as it moves past pandemic-induced boosts. The upcoming report from Coca-Cola (KO, Financial) on April 30 could add pressure if it shows significant volume gains. Despite these challenges, PepsiCo's strong global brand loyalty and the unchanged demand backdrop suggest potential for recovery, especially in North America, as market conditions improve.
