PepsiCo’s financial performance last year fell short of expectations

Profits drop, weak quarterly numbers

According to the company’s latest quarterly report, fourth-quarter net sales fell 0.2 percent to $27.78 billion, missing analysts’ expectations of $27.89 billion. Although earnings per share (EPS) beat estimates by 2 cents, the earnings data put pressure on the stock price, which fell 2 percent before the New York Stock Exchange opened.

PepsiCo’s annual profit, however, rose:

It earned $1.30 billion in the fourth quarter (up 17 percent),

and for the full year, it made a profit of $9.58 billion (up 5.6 percent).

North American demand slumps

The North American market has been particularly weak. The company’s two main units, its soft drink portfolio and snack maker Frito-Lay North America, have both seen significant slowdowns. Pepsi’s soft drink revenue grew just 1 percent organically in the fourth quarter, while Frito-Lay’s fell 0.5 percent. A year earlier, those numbers showed increases of 7 percent and 9 percent, respectively.

Inflation and price increases by PepsiCo, which has driven consumers to cheaper competitors, have contributed to the decline in demand. The company is now considering reducing its prices by using smaller packaging, hoping to make the impact less noticeable to consumers.

New Strategy: Lower Prices and Innovation

The company’s management is focusing on product development and the introduction of lower-priced products, while trying to win back lost customers with more aggressive marketing campaigns. The company promises to invest in expanding its product range and put the company back on a growth path.

PepsiCo expects organic sales growth of 1 to 3 percent for the current fiscal year and EPS growth of a similar magnitude. This is significantly lower than the 4.8 percent growth forecast by analysts.