PepsiCo’s Snacks Business Starts to Rebound After Price Cuts

Ken Shea, Bloomberg Intelligence Senior Consumer Products Analyst, breaks down PepsiCo earnings, which beat estimates thanks in-part to the company's salty-snack price cuts.

PepsiCo Inc. said it’s starting to see salty snack sales grow after the company cut prices earlier this year.

The maker of Doritos and Lay’s said its strategy of slashing prices by up to 15% in some brands and reducing internal costs through layoffs and plant closures was starting to pay off. After years of declines, organic revenue in its North American foods division increased 1% and volume grew 2%, the company said in its first quarter earnings Thursday.

“We think the consumer is back in our brands,” Chief Executive Ramon Laguarta said on a call with analysts Thursday. Laguarta said the company saw some customers coming back due to lower prices and some attracted by products reformulated without artificial colors or flavors.

Still, the company reported a 2.5% drop in sales volume in its North American beverages.

The company is also contending with a broader shift in eating habits toward healthier, less-processed options and has rolled out new products that are higher in fiber and protein.

PepsiCo shares were little changed at 9:38 a.m. in New York. The stock had risen 7.9% this year through Wednesday’s close, outpacing the 2.6% increase in the S&P 500 Index.  PepsiCo Inc. said it’s starting to see salty snack sales grow after the company cut prices earlier this year.

The maker of Doritos and Lay’s said its strategy of slashing prices by up to 15% in some brands and reducing internal costs through layoffs and plant closures was starting to pay off. After years of declines, organic revenue in its North American foods division increased 1% and volume grew 2%, the company said in its first quarter earnings Thursday.

“We think the consumer is back in our brands,” Chief Executive Ramon Laguarta said on a call with analysts Thursday. Laguarta said the company saw some customers coming back due to lower prices and some attracted by products reformulated without artificial colors or flavors.

Still, the company reported a 2.5% drop in sales volume in its North American beverages.

The company is also contending with a broader shift in eating habits toward healthier, less-processed options and has rolled out new products that are higher in fiber and protein. PepsiCo shares were little changed at 9:38 a.m. in New York. The stock had risen 7.9% this year through Wednesday’s close, outpacing the 2.6% increase in the S&P 500 Index.

Read More: Doritos Selling for $7 a Bag Ended Up Costing PepsiCo Billions

The Purchase, New York-based company reaffirmed its outlook for the full year, while cautioning about an increasingly volatile macroeconomic environment.

“Our assumption is that inflation will come,”Chief Financial Officer Steve Schmitt said in response to a question about the war in Iran on the analyst call. While he said the company’s commodity-hedging programs are expected to “near-term visibility here,” he said the company was prepared to make adjustments to its productivity efforts and adjustments to the size and combination of its products if needed to contend with higher costs.

“Our assumption is that we can mitigate what comes our way this year,” and the company is starting to work through what next year will look like, Schmitt said. Organic sales, which strips out items such as currency swings and acquisitions, increased 2.6% in the first quarter, the company said in a statement Thursday, outpacing analysts’ average estimate. Earnings per share, excluding some items, also exceeded projections.

Laguarta said he expected to see continued improvement in the North America food business this year, buoyed by both lower prices and new products. Stores are about halfway through reformatting their shelves to give Frito-Lay more space, he noted. Retailers including Walmart Inc. had pressed PepsiCo to lower prices and had reduced its shelf space as sales had declined.

Laguarta said in February that the company negotiated double-digit increases in shelf space at stores along with the price cuts.

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