- CEO Laguarta warns of increased supply chain costs from tariffs
- PepsiCo plans to adjust sourcing to mitigate higher costs
- Organic volumes decline 2% as promotions fail to boost demand
- Speed up transition to natural ingredients after RFK Jr's push
April 24 (Reuters) - PepsiCo on Thursday cut its annual profit forecast as the soda and snacks giant signaled higher production costs and subdued consumer spending due to the uncertainty fueled by U.S. President Donald Trump's expansive tariffs.
The Frito-Lay maker also posted its first quarterly profit miss in at least five years. Its shares were down nearly 2.5% in early trading.
"We expect more volatility and uncertainty, particularly related to global trade developments, which we expect will increase our supply chain costs," CEO Ramon Laguarta said in a statement.
Consumer goods bellwether Procter & Gamble and rival Kimberly-Clark have also lowered their profit forecasts, tempering expectations due to the tariffs uncertainty.
PepsiCo forecast fiscal 2025 core earnings per share to decline 3%, compared with its previous expectation of a low-single-digit increase.
The tariffs on trading partners have also have also stoked fears of high inflation and stagnation in economic growth, likely weighing on consumer spending.
"Relative to where we were three months ago, we probably are not feeling as good about the consumer," PepsiCo Chief Financial Officer Jamie Caulfield said on a post-earnings call.
A P&G executive on the company's earnings call on Thursday also warned that it was "unclear how long this period of consumer softness will last".
MITIGATION STRATEGY
PepsiCo plans mitigation actions to address the higher supply chain costs where possible, said Laguarta, adding it would include adjusting sourcing of key inputs.
The company has two food plants in Mexico and two concentrate plants in Ireland.
Price increases undertaken to offset rising costs initially tied to the COVID-19 pandemic and supply-chain disruptions have benefited PepsiCo and peers over the past several quarters.
"Price hikes are doing the heavy lifting, with volume growth across its beloved brands like Pepsi, Gatorade, Lay's and Doritos struggling to gain momentum," said Aarin Chiekrie, equity analyst with Hargreaves Lansdown, on the latest results.
Average prices jumped 3% in the three months ended March 22, while organic volumes declined 2%.
MORE NATURAL INGREDIENTS
PepsiCo executives said on a post-earnings call the company would accelerate the transition to natural ingredients within its portfolio.
U.S. Health Secretary Robert F. Kennedy Jr has pushed to remove synthetic food dyes from the nation's food supply, amid concerns about a possible link between their consumption and health conditions like ADHD, obesity and diabetes.
PepsiCo, which in March said it would buy prebiotic soda brand Poppi, and rival Coca-Cola are also bolstering their healthier snacking and energy drinks portfolios.
On an adjusted basis, PepsiCo earned $1.48 per share in the first quarter, missing estimates of $1.49, according to data compiled by LSEG.
The soda and snacks giant's revenue fell 1.8% to $17.92 billion. Analysts on average had estimated $17.77 billion.
"With little sign of a positive catalyst in the near term, it could be a tough year for PepsiCo investors," said Chiekrie.
Reporting by Ananya Mariam Rajesh in Bengaluru; Editing by Sriraj Kalluvila
Source: Reuters