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PepsiCo Predicts A Rare Revenue Dip Due To Price Increases Hurting Demand

PepsiCo Predicts A Rare Revenue Dip Due To Price Increases Hurting Demand
PepsiCo's shares fell as much as 4% on Friday after the company revealed a surprising decline in quarterly sales and predicted a steep slowdown in organic revenue growth for 2024 due to several price increases that are impacting the demand for its chips and beverages.
After two years of PepsiCo passing on higher manufacturing costs to customers in order to protect its margins, the company warned that demand has started to decline, primarily in the United States, where consumers are protesting at higher prices for sodas and snacks.
"We are seeing a bit of a slowdown in the U.S.," CEO Ramon Laguarta said on a post-earnings call. Both food and beverages slowed in the fourth quarter, he said, in part due to pricing and tightening household budgets.
The biggest food retailer in Europe, Carrefour , declared in January that it would not be carrying PepsiCo's brands "due to unacceptable price increases".
For the first time in 14 quarters, PepsiCo's revenue decreased by 0.5% to $27.85 billion in the fourth quarter. LSEG data shows that analysts had projected a 1.4% increase to $28.40 billion.
The performance of PepsiCo thus far has exceeded everyone's expectations, according to Don Nesbitt, portfolio manager at ZCM, which owns roughly 1% of the Doritos company.
"We knew that they weren't going to be able to push through as much pricing as they have in the past."
The leader in soda and snacks expects organic revenue to grow by at least 4% annually in fiscal 2023, as opposed to the 9.5% growth announced for the previous year.
In contrast to projections of $8.14, the business projects core earnings per share for fiscal 2024 of $8.15.
Jamie Caulfield, chief financial officer of PepsiCo, stated that the company anticipates a small increase in raw material costs from the levels observed in fiscal 2023.
Additionally, a 7% increase in its yearly dividend was announced.
Core gross margin increased by 97 basis points in the fourth quarter due to a 9% increase in average pricing. Volume organic decreased by 4%.
"The volumes again are not kind of performing...they are not getting the improvement in tandem with the moderating levels of pricing... that is likely going to be a headwind for them over the near term," Wedbush analyst Gerald Pascarelli said.

Christopher J. Mitchell

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