PepsiCo (PEP) Reports Mixed Q4, Misses Revenue Estimates But Beats EPS Targets

The management highlighted key strategic changes to its snack business Frito-Lay North America, which manufactures popular products like Lays, Cheetos, and Doritos.

PepsiCo Inc. PEP reported a mixed fourth quarter on Tuesday, with a slight miss on revenue but a beat on earnings per share.

Here are the key takeaways from the earnings call.

Frito-Lay North America Organic Revenue Drops: Frito-Lay North America (FLNA) saw a decline in organic revenue for both the full year 2024 and the fourth quarter. Full-year organic revenue decreased by 0.5%, a significant drop from the 9% growth seen in 2023. In the fourth quarter alone, organic revenue was down 2%.

Despite the organic revenue decline, FLNA's volume grew sequentially in the fourth quarter, driven by strong performance in the salty snacks category, according to the management. This follows a volume decline in the third quarter.

For the full year, FLNA's revenue decreased by 0.3% to $21.09 billion, compared to $21.15 billion in 2023. This includes a 0.5% decrease in organic revenue.

'Building The Infrastructure To Capture Those Opportunities': PepsiCo reinvested heavily in FLNA in Q4, funded partly by one-time gains, to revitalize volume growth. This included tactical spending and strategic groundwork for 2025.

“We reinvested most of the one-time gains in building the infrastructure to capture those opportunities in 25,” the chairman and CEO of the company, Ramon Luis Laguarta said in response to an analyst during the earnings call.

The company is also emphasizing value offerings at different price points and pack sizes, said Laguarta, adding that this is present across categories, along with healthier options like products with lower sodium, and fat, better ingredients, and plant-based items. The management is addressing consumer preferences for “positive choices” and “permissible offerings.”

“I think there’s a higher level of awareness in general of American consumers toward health and wellness, driven by conversations around obesity drugs, and other health-related topics,” Laguarta said, regarding increased awareness among consumers.

“This increased awareness is also influencing consumer behavior, which we are addressing through our strategies.”

Fourth-Quarter Sales Miss, EPS Beats Estimates: Fourth-quarter sales fell slightly short of expectations, decreasing by 0.2% year-over-year to $27.78 billion, compared to the projected $27.89 billion. However, adjusted EPS of $1.96 beat the $1.94 consensus.”

For the next full year, PepsiCo projects low single-digit organic sales growth for 2025, anticipating a gradual improvement in North America. They reaffirmed their long-term targets of 4-6% organic sales growth and high single-digit EPS growth.

Restructuring efforts aim to boost international growth and North American efficiency, the management highlighted. PepsiCo also said that it is mindful of macroeconomic uncertainties and evolving consumer behavior, including the potential impact of weight loss drugs, though no direct impact has been observed.

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