For the first time since Q4 2020, PepsiCo (PEP, Financial) missed EPS expectations in Q1 2025, highlighting tough conditions for the beverage and snack company. PepsiCo Foods North America (PFNA), home to the Frito-Lay brand, reported declines in both organic revenue and volume for the third consecutive quarter. Weak consumer demand and value-focused shopping, particularly in savory snacks, continue to impact Frito-Lay. Additionally, PEP expects higher supply chain costs due to tariffs and global trade issues, leading to a reduced FY25 EPS growth forecast to flat from mid-single-digit growth.
- PFNA's organic revenue and volume fell by 1%, driven by low demand across the Frito-Lay portfolio. Ongoing high inflation is straining consumer budgets, prompting shoppers to reduce discretionary purchases like salty snacks or opt for cheaper private-label brands. Declining convenience store traffic, which accounts for about 21% of Frito-Lay's net sales, and a shift towards health and nutrition are also impacting demand.
- Quaker Foods showed strength with strong double-digit organic revenue growth, recovering from last year's recall impact. Brands like Chester's, Miss Vickie's, and Gamesa also posted net revenue growth in Q1.
- In PepsiCo Beverages North America (PBNA), organic revenue rose by 1% despite a 3% volume decline, aided by strategic pricing. Non-carbonated drinks saw a 6% volume drop, but the Pepsi brand gained share in carbonated soft drinks, offsetting some weaknesses. The national rollout of Mountain Dew Baja Blast also contributed positively.
- Despite higher supply chain and input costs, PBNA's pricing and productivity strategies are mitigating these challenges. PEP's multi-year program using automation, standardization, and data analytics is driving savings, resulting in a 24% increase in PBNA's operating profit on a core constant currency basis.
- The International Beverages Franchise excelled with a 5% volume increase, boosting net revenue by 3%, despite a 5 percentage point FX headwind. Global expansion of core brands like Lay's, Cheetos, Doritos, Pepsi, and Gatorade remains central to PEP's international growth strategy.
PEP's Q1 results reflected a 4% decline in core constant currency EPS and modest 1.2% organic revenue growth. Challenges include soft consumer demand, especially in the Frito-Lay segment, new tariffs, and rising supply chain costs, leading PEP to adjust its FY25 EPS outlook to flat growth. The International segment remains robust, achieving 11% organic revenue growth.
