By Savyata Mishra
(Reuters) -PepsiCo cut its forecast for annual sales growth on Tuesday as picky consumers in North America limit their spending on sodas and savory snacks, while opting for cheaper private-label brands.
The company, whose brands include Mountain Dew, 7up and Lays, now expects organic sales to grow in a low single-digit range for fiscal 2024. It had previously forecast a 4% rise.
"The cumulative impacts of inflationary pressures and higher borrowing costs over the last few years have continued to impact consumer budgets and spending patterns," CEO Ramon Laguarta said.
A rise in prices for food and other products has forced consumers to curtail their spending habits, opt for smaller packages and portions, and shop less at convenience stores, which typically account for a bigger portion of PepsiCo (NASDAQ:PEP)'s beverage sales.
PepsiCo also posted a surprise drop in third-quarter revenue, driven in part by a 13% slump in sales at Quaker Foods, which is still reeling from the impact of product recalls earlier this year.
Still, price increases, cost controls and measures to drive efficiencies across its operations helped PepsiCo prop up profit, while maintaining its full-year adjusted profit target.
"Pepsi's variety of top-class brands has done well to soften the blow of the Quaker Oats fallout somewhat. But if demand doesn't pick up soon, profits will start to come under pressure," Hargreaves Lansdown analyst Aarin Chiekrie said.
The packaged foods giant's international markets, including Latin America, China and Europe, are also witnessing a slowdown in volumes.
"It is looking like Pepsi is in need of its own energy shot to boost revenues," said Brian Mulberry, client portfolio manager at Zacks Investment Management.
Elevated geopolitical tensions, including the Middle East conflict, and macroeconomic pressure are expected to persist in some international markets, CEO Laguarta said.
Net revenue fell 0.6% to $23.32 billion in the quarter ended Sept. 7, below estimates of $23.76 billion.
It earned $2.31 per share on an adjusted basis, above expectations of $2.29 per share, according to data compiled by LSEG.
Shares of the company were flat in early trading.