PepsiCo plans to raise prices on some snacks and drinks and slash corporate costs after a disappointing performance in North America during the third quarter.
The price hikes, which will hit Doritos, Ruffles, SunChips and some sodas, will be in the single-digit percentage range, and prices will still be lower than they were at the start of this year. PepsiCo said Thursday that it must raise prices to recoup rising costs for fuel, aluminum and agricultural commodities.
Many companies, including PepsiCo, have offset rising costs this year by using tariff refunds issued by the U.S. government after the Supreme Court struck down President Donald Trump’s far-reaching global tariffs.
PepsiCo used its $178 million refund to do just that during the most recent quarter, but said that money will not be available in coming quarters.
Yet there are risks for U.S. companies that raise prices in the current economic environment, with so many American households already stretched financially.
PepsiCo leaned heavily into price increases to combat inflation in the aftermath of the COVID-19 pandemic. The company hiked prices by double-digit percentages for eight straight quarters in 2022 and 2023 before settling into more moderate price increases.
Consumers revolted, and sales of PepsiCo’s drinks and Frito-Lay snacks fell. Last fall, activist investor Elliott Investment Management took a $4 billion stake in the company and began pressing for even lower prices. PepsiCo agreed, and it slashed prices on Lay’s, Doritos, Cheetos and Tostitos chips by up to 15% before the Super Bowl.
Laguarta said the lower prices have brought back some consumers, but the third-quarter results remained weaker than hoped, partly due to tepid sales in Canada. Frito-Lay snack food volumes were flat in the July-September period compared with the same period last year. Beverage volumes fell 2%.
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Laguarta also said during a conference call that “we don’t feel good about the beverage business.”
Sales of hydration drinks like Gatorade and energy drinks like Celsius were stronger in North America, but soda sales slumped.
“We’re putting all the urgency of the business and the focus in improving our performance in soft drinks,” Laguarta said.
PepsiCo lowered its earnings expectations for the year, saying it now expects adjusted earnings per share to grow 2.5% to 3.5%. Previously, it had expected growth between 5% and 7%. The company now expects full-year revenue growth of 6%, the high end of its earlier forecast of between 4% and 6%.
Still, PepsiCo reported better-than-expected revenue for the quarter on the strength of its international business, which makes up 41% of the company’s revenue. Net revenue rose 5.6% to $25.27 billion in the July-September period. Wall Street had expected revenue of $24.95 billion, according to analysts polled by FactSet.
The company, based in Purchase, New York, said its global snack food volumes increased 4%, the highest rate of growth since 2021. World Cup-related demand for Lay’s snacks was strong, the company said, and PepsiCo gained share in key markets like China and Brazil. Snack food volumes rose 11% in the Asia-Pacific region, PepsiCo said.
Fast-growing categories include snacks with simpler ingredients, like Doritos and Gatorade Lower Sugar with no artificial colors or flavors, as well as protein-enhanced snacks, the company said.
Net income rose 17% to $3.07 billion in the third quarter. Adjusted for one-time items, the company earned $2.34 per share. That was higher than the $2.29 per-share earnings analysts expected.
PepsiCo shares rose 2% Thursday.