- PepsiCo forecasts higher input cost inflation in the second half
- Q2 North America food sales down 2% on lower effective net pricing - CFO
- High gas prices hurt demand more than PepsiCo expected in Q2
- Shares down about 5% in morning trading
July 9 (Reuters) - PepsiCo on Thursday warned of higher commodity costs in the second half of the year, at a time when the snack and beverage giant is increasing investments and lowering prices to attract value-conscious consumers.
Shares of PepsiCo, which slipped about 5%, were on track for their worst day since April 2025 after the company kept its forecast intact and reported a 2% drop in sales in its North American food business.
PepsiCo's results underscore the challenges facing packaged food companies in the U.S. as they try to revive snack demand by cutting prices and investing heavily in product reformulations and healthier offerings to adapt to shifting consumer preferences and the rise of GLP-1 weight-loss drugs.
Additionally, food and beverage companies are contending with rising packaging and logistics costs as the Iran war keeps oil prices higher.
Although PepsiCo is expecting higher input cost inflation in the second half of the year, its CFO, Steve Schmitt, said refund claims for tariffs paid last year and productivity savings should help cushion the hit.
PepsiCo had cut prices on brands such as Lay's and Doritos by up to 15% in North America to lure back budget-conscious consumers, who are increasingly shifting toward cheaper alternatives and smaller pack sizes amid persistent inflation concerns.
CEO Ramon Laguarta credited portfolio evolution and strength in its international business with higher organic volumes, but said results were tempered by tighter consumer budgets and inflationary pressures. The company said high gas prices had dented consumer demand more than it had anticipated.
PepsiCo is refreshing brands and introducing products without artificial colors or flavors, such as Gatorade Lower Sugar, as well as protein-packed offerings, such as Propel powder and Quaker Protein Rice Crisps, aimed at a growing preference toward healthy diets.
"Pepsi's challenge isn't building iconic brands, it's keeping them relevant," eMarketer analyst Suzy Davidkhanian said.
"Consumers are still spending, but they're becoming more intentional about where they spend, and they expect the brands they already know to evolve with them by giving them more choice," she added.
The company kept its annual forecasts unchanged, expecting fiscal 2026 organic revenue growth in the range of 2% to 4% and core constant currency earnings per share to rise between 4% and 6%.
"The North America advertising and marketing expense is projected to increase in the second half," Schmitt said on an analyst call. "So we're going to continue to play offense."
Quarterly revenue rose 6.4% to $24.18 billion from a year earlier, beating analysts' estimates for a 5.4% increase to $23.95 billion, according to data compiled by LSEG.
PepsiCo posted quarterly core earnings per share of $2.20, compared with $2.12 a year ago.
Reporting by Anuja Bharat Mistry in Bengaluru and Alexander Marrow in London; Editing by Anil D'Silva
Source: Reuters