Global Demand Fuels PepsiCo as North American Sales Stumble

High prices are pushing volumes down in America.

Via Reddit

International sales make up about 40% of PepsiCo’s revenue.

Thank god for international markets.

That's the takeaway from last week's PepsiCo earnings call. Organic revenue increased by 9 percent in non-North American markets. Meanwhile, everything on the home continent lagged--arguably due to high prices. 

Combined, organic revenue in the company's flagship American chip and soda business grew just 1 percent, while the weight of a Salmonella recall crated the Quaker division by 24 percent. All growth right now is still being driven by prices. The price of soda grew 6 percent, pushing volume down 5. Management didn't seem particularly worried about hitting the year's forecast—primarily because the company is using its significant muscle to grab shelf space from competitors.  

While good old-fashioned pay-for-play slotting fees have mostly been phased out of retail, retailers still often demand placement-related payments. Instead of lump sum slotting fees, retailers now want a similar amount of money spread over individual items. This practice is much more regulated in other parts of the world. "European business and other parts of the world are less impacted by this type of negotiations," CEO Ramon Laguarta told investors last week while praising the teams in charge of these initiatives. "We feel good overall, and that's why we are reaffirming our guidance to grow at least 4% in our net revenue for this year." 

First Quarter Results for PepsiCo.

• Worldwide, the company grew revenue by 2.3% to $18.2 billion

• Recorded $2 billion in profit.

• Generally, most of its categories are outgrowing the competition.

There is a lot of margin growth left in FritoLay.

• The North American Frio-Lay business typically has margins of over 25%; they could go a bit higher.

• Commodity costs are decreasing across the category, making the existing elevated prices particularly appealing.

• "I think you'll see margin improvement over time at Frito, but this is a business that has very healthy margins already, and we want to make sure that we're investing back in the business to sustain growth," Laguarta told investors.

North American Beverage could see some divestment.

• PepsiCo could streamline its product lineup by eliminating less profitable items, including certain packed water formats.

• The company expects ongoing margin expansion and profitable growth at PBNA, emphasizing improved supply chain and sales operational efficiency.

They said it:

CEO Ramon Laguarta on shelf space negotiations:
To your specific question on space gains, I think it's going to be a good reset time for us across snacks and beverages. It's not completed yet. It's way normally I would say, probably another 6 weeks or so. We're feeling good about where we've seen already reset the performance improvement in the business.

So that's good, well done by the commercial teams. So yes, we feel good overall, and that's why we are reaffirming our guidance to grow at least over 4% in our net revenue for this year.