PepsiCo cuts its profit forecast as its North American turnaround takes longer than planned

PepsiCo cut its full-year profit forecast on Thursday, saying the effort to revive its North American snack and soda businesses is taking longer than it planned. The weaker outlook overshadowed a quarter in which overseas markets drove the company's fastest underlying sales growth since the end of 2023.

Revenue for the 12 weeks ended Sept. 5 rose 5.6% to $25.27 billion, helped by acquisitions and currency. Excluding those effects, organic revenue grew 3.1%, up from 2.4% in the second quarter. Core earnings, which exclude items such as restructuring costs and commodity-hedging gains, rose 2% to $2.34 a share. Under standard accounting, earnings were $2.23 a share, compared with $1.90 a year earlier, when PepsiCo took a charge to write down its Rockstar energy-drink brand.

Both numbers came in above Wall Street's expectations. Analysts had on average forecast core earnings of $2.29 a share, the same as a year earlier, on revenue of $24.96 billion, according to LSEG data.

What the new forecast says

PepsiCo now expects core earnings per share to grow 1% to 2% this year at constant exchange rates. Before Thursday it had been pointing to the low end of a 4% to 6% range. Including currency, core earnings growth is now expected at 2.5% to 3.5%, down from the low end of 5% to 7%. Through the first 36 weeks of the year, core earnings per share were up 5%, so the lower full-year range points to slower growth in the final quarter.

The sales outlook held up better. The company now expects organic revenue growth of about 3%, the middle of its earlier 2% to 4% range, and reported revenue growth of about 6%, the top of its old range, as currency and last year's acquisitions add more than it had assumed. It kept its plan to return about $8.9 billion to shareholders this year, $7.9 billion in dividends and $1 billion in share buybacks.

"In North America, we remain committed to improving growth and core operating margin. However, it is taking more time than we planned," Chief Financial Officer Steve Schmitt said in prepared remarks. It expects North American margins to stay under pressure in the fourth quarter.

Where the turnaround is stalling

The problem is in the U.S. and Canada. Revenue at PepsiCo Foods North America, which makes Lay's, Doritos and Quaker products, slipped to $6.50 billion from $6.53 billion. Higher volume added half a percentage point, but lower net prices, partly the result of its push to make snacks more affordable, took about 1 percentage point off revenue, and core operating profit at the division fell 12%. Its core operating margin narrowed by 2.8 percentage points, which the company attributed to those affordability investments, higher advertising spending and a gain from an asset sale a year earlier that did not recur.

PepsiCo Beverages North America grew revenue 5% to $7.71 billion, but that growth came from brands it bought last year. Excluding them, revenue slipped slightly: lower volume took about 3 percentage points off, and higher prices made up most of the difference. The company said its carbonated soft drinks "trailed category performance" and called reviving them a priority. Core operating profit in the beverage unit rose 4%.

Across the company, core operating profit rose 3% to $4.28 billion, and the core operating margin slipped to 16.9% from 17.3%. That growth leaned on $178 million of refunds of tariffs PepsiCo had paid, which accounted for about 4 percentage points of the increase. Without them, core operating profit would have been slightly lower than a year earlier.

Overseas growth carries the quarter

Outside North America, organic revenue rose 8%, the fastest pace since early 2024 and the 22nd straight quarter of at least mid-single-digit growth, the company said. International core operating profit rose 16%. Latin America food revenue climbed 14%, Asia Pacific food 10%, and the Europe, Middle East and Africa unit and the international beverage franchise business 8% each. So far this year, international markets have supplied 41% of PepsiCo's revenue and 45% of its core segment operating profit.

Chief Executive Ramon Laguarta said the company is "acting with urgency" in North America and is putting more money into new products and marketing. To pay for that, he said, "additional structural cost reduction actions are being identified and will be implemented in the coming months," partly to offset "rising input cost inflation." The prepared remarks cited reductions in corporate costs and discretionary spending, but gave no dollar figure or job numbers.

How the shares are trading

PepsiCo shares closed at $123.73 on Wednesday, down 1.6% and just above the 52-week low of $123.47 they touched that day, and about 28% below their February high of $171.48. Before the market opened on Thursday, the stock was up 2.3% at $126.55 at 7:21 a.m. Eastern time. Executives were scheduled to take questions from analysts at 8:15 a.m.