PepsiCo (PEP.US) recently released its second-quarter financial report showing that although the company achieved slight revenue growth, it failed to meet market expectations, with total revenue of $22.5 billion, a slight increase of 0.8% year-on-year. On the earnings front, non-GAAP earnings per share beat expectations to $2.28, while GAAP earnings per share increased 13% year-over-year to $2.23 and net income increased 12% to $3.0 billion.
However, in the face of weak demand in the North American beverage and snack market, PepsiCo had to lower its full-year revenue forecast from at least 4% growth to 4% organic revenue growth. This adjustment reflects the increased budget awareness of consumers and the challenging market environment.
In particular, the recall of Quaker Foods had a significant impact on sales, coupled with a shift in consumer preferences, which led to a 2% year-on-year decline in food sales, especially in the North American market for Frito-Lay and Quaker Foods. Global sales also declined for eight consecutive quarters, partly due to the company's strategic package sizing.
Between April and June, PepsiCo's net profit rose 12% to $3 billion, with adjusted earnings per share of $2.28, slightly above Wall Street's previous estimate of $2.16. PepsiCo has continued to raise prices in response to rising costs, but the move has met headwinds in key markets, with low-income consumers cutting back or switching to more economical brands. As a result, PepsiCo shares suffered a setback in pre-market trading, falling more than 2%. In the past year, its share price has also underperformed the broader market and rival Coca-Cola.
"We achieved organic growth of 1.9% in the second quarter, bringing our two-year compound organic growth of 7.3% in the second quarter," said Ramon Laguarta, CEO of PepsiCo. Core constant currency EPS was up 10%, compared to a two-year compound growth rate of 12% in the second quarter. Going forward, the company will focus on improving productivity, targeting promotions, and increasing advertising and marketing investments in response to tightening consumer budgets and slowing category growth. At the same time, the company is working hard to overcome the aftermath of the Quaker food recall and is committed to restoring market confidence and sales growth.
Globally, PepsiCo's sales fell 3 percent, in part due to the company's strategic downsizing. But more importantly, as prices continue to rise, low-income consumers in the United States are buying fewer snacks or switching to cheaper store-brand snacks, which puts pressure on PepsiCo's market share.
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