PepsiCo hikes snack prices after weak North American quarter

A single-digit percentage increase on Doritos, Ruffles, SunChips, and certain sodas is coming from PepsiCo. The move follows a lackluster third-quarter showing in North America, where beverage volumes dropped 2% and Frito-Lay snack food volumes remained flat compared to the same period last year.

Cost recovery drives price adjustments

The company stated Thursday that these hikes are necessary to recoup rising costs for fuel, aluminum, and agricultural commodities. Despite the increases, prices will remain lower than they were at the start of this year. PepsiCo also plans to slash corporate costs to address the underperformance.

Many firms, including PepsiCo, had previously offset rising expenses using tariff refunds issued by the U.S. government. These refunds followed a Supreme Court decision striking down President Donald Trump’s far-reaching global tariffs. PepsiCo utilized its $178 million refund during the most recent quarter but confirmed that such funds will not be available in upcoming quarters.

Consumer response and sales trends

Raising prices carries risks in the current economic environment, as many American households face financial strain. PepsiCo had leaned heavily into double-digit price increases for eight straight quarters in 2022 and 2023 to combat post-pandemic inflation. This strategy led to a consumer revolt, causing sales of drinks and Frito-Lay snacks to fall.

Last fall, activist investor Elliott Investment Management took a $4 billion stake in the company and pressed for lower prices. PepsiCo agreed, slashing prices on Lay’s, Doritos, Cheetos, and Tostitos chips by up to 15% before the Super Bowl. CEO Ramon Laguarta noted that while lower prices brought back some consumers, third-quarter results remained weaker than hoped, partly due to tepid sales in Canada.

Performance metrics and outlook

Laguarta expressed dissatisfaction with the beverage sector during a conference call, stating, “we don’t feel good about the beverage business.” He added, “We’re putting all the urgency of the business and the focus in improving our performance in soft drinks.” While soda sales slumped, hydration drinks like Gatorade and energy drinks like Celsius performed stronger in North America.

PepsiCo lowered its annual earnings expectations. Adjusted earnings per share are now projected to grow between 2.5% and 3.5%, down from the previous forecast of 5% to 7%. Full-year revenue growth is expected to hit 6%, the high end of the earlier 4% to 6% range.

International operations helped buffer the domestic weakness. Net revenue rose 5.6% to $25.27 billion in the July-September period, beating Wall Street expectations of $24.95 billion according to FactSet analysts. The international business accounts for 41% of total revenue. Global snack food volumes increased 4%, marking the highest growth rate since 2021.

Demand for Lay’s snacks was strong due to World Cup-related activity. PepsiCo gained market share in key regions including China and Brazil. Snack food volumes in the Asia-Pacific region rose 11%. Fast-growing categories include snacks with simpler ingredients, such as Doritos and Gatorade Lower Sugar, which contain no artificial colors or flavors.