PepsiCo announced Thursday that it will be increasing prices on some of its chips and drinks following a disappointing third quarter. This marks a shift from its recent strategy of trying to save consumers money, attributed to soft soda sales and challenges in its turnaround plan.
Prices for Doritos, Ruffles, SunChips, and certain soda brands will see a single-digit percentage increase, though they will remain lower than at the beginning of the year. Pepsi cited rising costs for fuel, aluminum, and agricultural supplies, exacerbated by the Iran war and tariffs, as reasons for the price hikes.
This move contrasts with the company's decision in February to slash prices on Lay's, Doritos, Cheetos, and Tostitos by up to 15% before the Super Bowl, aiming to win back consumers affected by inflation.
PepsiCo CEO Ramon Laguarta acknowledged that while the lower prices helped attract some customers, the third-quarter earnings in the North America division fell short of expectations, and the turnaround is taking longer than anticipated. Frito-Lay snack volumes were flat year-over-year, while beverage volumes declined by 2%.
"We don’t feel good about the beverage business," Laguarta stated during a conference call, admitting that the company's sodas, including the flagship Pepsi brand, have underperformed compared to competitors. He emphasized that PepsiCo will focus its efforts on improving performance in soft drinks.
The company plans to cut costs and reallocate savings to increase investments in Poppi, a healthy probiotic soda brand acquired last year, as well as in Mountain Dew and Pepsi.
PepsiCo initiated its turnaround process last fall after activist investor Elliott Investment Management acquired a $4 billion stake and urged the company to lower prices. Prior to this, the company had implemented double-digit price increases for eight consecutive quarters through 2022 and 2023 to offset soaring inflation.
Despite lowering prices this year, PepsiCo has encountered sluggish demand for sodas and snacks. Factors contributing to this include consumers cutting back on non-essential purchases and the growing use of GLP-1 medications impacting sales of less healthy food options.
In the third quarter, North America's top-performing products included snacks with simpler ingredients, such as Doritos without artificial colors or flavors, and hydration drinks like Gatorade and energy drinks like Celsius. The company intends to expand its high-protein offerings to appeal to users of weight-loss drugs, who are advised to follow high-protein, high-fiber diets.
PepsiCo reported better-than-expected third-quarter revenue, largely driven by its international business, which constitutes 41% of total revenue. Global snack food volumes increased by 4%, boosted by demand for Lay's snacks related to the World Cup.
The company reported adjusted earnings per share of $2.34, surpassing Wall Street's estimate of $2.29.
PepsiCo has revised its annual forecast downward, now expecting adjusted earnings per share to grow between 2.5% and 3.5%, a decrease from the previous projection of 5% to 7% growth. However, full-year revenue is still anticipated to grow by 6%, aligning with the higher end of its previous 4% to 6% forecast range.
PepsiCo's shares rose by 2.6% on Thursday.
