PepsiCo under pressure: falling profit expectations, tightening regulations, falling demand
PepsiCo has cut its profit outlook for this year, as the company says the unpredictability of US trade policy, deteriorating consumer sentiment and health-conscious regulatory actions are all having an adverse impact on its operations. The global food giant, known for its soft drinks, breakfast cereals and snacks, now expects earnings per share to be the same as last year, compared to an increase of around 10 percent previously indicated, vg.hu reported.
Profits in the shadows
The company’s first-quarter sales fell 1.8 percent to $17.9 billion, while organic revenue growth – i.e. adjusted for exchange rate effects and acquisitions – was 1.2 percent. Earnings per share (EPS) fell to $1.48, just shy of analyst expectations.
The subdued numbers were affected by increased purchasing and logistics costs, rising tariffs and trade uncertainties. “As we look ahead, we expect greater volatility and uncertainty, especially in global trade,” said CEO Ramon Laguarta.
Sensitive domestic market
In the company’s key market, North America, Frito-Lay snack brand volumes fell 1 percent, while soft drink sales fell 3 percent. Despite sales and promotions, frugal consumers are increasingly choosing other, cheaper alternatives.
Tightening US food regulations pose another challenge. As part of a new campaign, Health Secretary Robert F. Kennedy is calling for the gradual elimination of petroleum-based synthetic food dyes, which could affect many PepsiCo products. In addition, the government has limited the use of food stamps to sugary drinks and sweets. This is particularly sensitive for the company, as RBC Capital estimates that 6 percent of U.S. sales come from food stamps.
Stock Reaction and Outlook
PepsiCo shares were down 0.8 percent at $142.26 in premarket trading on the New York Stock Exchange. However, the company’s shares are down just 6 percent year-to-date, compared with an 8.4 percent decline in the S&P 500, so they remain more stable than the sector average.
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