(July 11): PepsiCo Inc reported weaker-than-expected revenue growth as its snack-food business was hurt by increasingly budget-focused shoppers and a recent Quaker Foods recall.

The maker of Doritos chips and Mountain Dew sodas said on Thursday that organic revenue rose 1.9% in the second quarter, missing the 2.9% average estimate of analysts surveyed by Bloomberg. The volume of food products sold in the period was down 2% from a year earlier, including steeper drops for the Frito-Lay and Quaker Foods businesses in North America.

After years of price increases and sales growth, PepsiCo’s US business is struggling. Persistent inflation has forced many shoppers to cut back on spending and switch to cheaper supermarket-owned brands. The salty snacks category has been particularly lacklustre as consumers focus more on nutrition and affordability.

“Price hikes have become increasingly difficult for consumers to stomach, pushing volumes in the wrong direction,” said Aarin Chiekrie, an equity analyst at Hargreaves Lansdown.

PepsiCo shares fell 1.6% in New York in early trading at 7.58am. The stock had fallen 11% over the past 12 months, compared with a 7% gain in the S&P 500 Consumer Staples Index and a 6% gain in shares of rival Coca-Cola Co.

In North America, PepsiCo volumes fell in both food and beverages. The company remains impacted by the large recall of Quaker Oats cereals, bars and snacks that began late last year. Volume was down 17% in the Quaker Foods division from a year ago.

Internationally, PepsiCo fared better with organic sales up across the board, which excludes the impact of acquisitions. Organic revenue in Latin America and the Asia-Pacific grew 2% and 1%, respectively, but fell short of analyst estimates as food volumes shrank.

PepsiCo plans to improve productivity and focus “surgically” on promotions, while increasing certain advertising and marketing initiatives, chief executive officer Ramon Laguarta said in a statement. The company said it expects that consumers will remain budget conscious and overall category growth will moderate.

“The group will have to lean into cost-cutting and productivity initiatives in order to offset some of the impacts of lower volumes and keep profit targets on track in the short term,” Chiekrie said in a research report.

Conagra Brands Inc also highlighted lower consumption trends and productivity initiatives in its earnings release on Thursday. Other packaged food makers such as General Mills Inc and Kraft Heinz Co have also been focusing on productivity as a way to improve margins in the face of sluggish sales growth.

Food is an increasingly big part of PepsiCo’s business, accounting for 59% of global revenue in 2023.

The Purchase, New York-based company reiterated most aspects of its full-year forecast aside from now targeting organic revenue growth of 4% for the year compared with “at least 4%” previously.

Core earnings per share were US$2.28 (RM10.72) for the quarter, beating the average analyst estimate of US$2.15. The company hasn’t missed quarterly profit estimates in more than 10 years, according to data compiled by Bloomberg.

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