PepsiCo Q1 Earnings Beat Expectations. North America Food Business Sees First Growth in Two Years as Price Cut Strategy Works.

TradingKey - PepsiCo ( PEP) reported its latest quarterly earnings on Thursday, showing that both profit and revenue exceeded market expectations, while its previously weak North American food business also achieved a rebound in volume.

According to the financial data, PepsiCo's first-quarter net revenue reached $19.44 billion, far exceeding the market estimate of $18.93 billion; operating profit was $3.21 billion, also higher than the expected $2.93 billion. Earnings per share reached $1.70, a significant increase from $1.33 in the same period last year.

Furthermore, the report disclosed that first-quarter net income attributable to the company was $2.33 billion, or $1.70 per share, a substantial increase from $1.83 billion, or $1.33 per share, a year earlier. Excluding the impact of one-time items such as restructuring and divestitures, the company's earnings per share were $1.61. Overall, net sales rose 8.5% year-over-year to $19.44 billion, while organic revenue, which excludes the effects of acquisitions, divestitures, and currency fluctuations, grew 2.6%, demonstrating the company's strong operational resilience.

Boosted by the positive earnings report, PepsiCo's U.S. pre-market shares rose 1.4%.

Recovery in North American food business

PepsiCo's North America food business saw volume growth for the first time in over two years. The division, formed by the merger of Frito-Lay North America and Quaker Foods North America, had previously faced consumer pushback following significant price increases driven by high inflation in 2022.

In February this year, PepsiCo implemented price cuts of up to 15% on flagship products such as Lay's and Doritos. Previously, consecutive quarters of price hikes sparked consumer dissatisfaction and affected product placement on retailer shelves; these price cuts were aimed at regaining market share. This adjustment yielded immediate results, driving the North America food business's first volume growth in a year.

Regionally, operating profit for the Asia-Pacific food division surged 36.0% year-on-year to $217 million, with core constant currency operating profit growth reaching 30.0%. The Europe, Middle East, and Africa (EMEA) segment saw organic revenue grow by 7.0% and operating profit increase by 27.0% year-on-year, demonstrating strong market momentum.

By comparison, the North American market delivered mixed results. Despite the recovery in food volume, operating profit fell 7.0% year-on-year to $1.429 billion, while core constant currency operating profit declined by 5.0%. North American beverage volumes continued to slide, with organic volume down 2.5% this quarter, representing a weak spot in the earnings. Furthermore, organic food volume in Latin America fell 2.0% year-on-year, weighing on regional revenue growth.

PepsiCo Reaffirms Full-Year Guidance

The industry giant, which owns well-known brands such as Pepsi, Lay's, and Doritos, not only reported impressive revenue in the quarterly results released that day but also maintained its annual guidance.

Following the earnings report, PepsiCo reaffirmed its full-year guidance for fiscal 2026, forecasting organic revenue growth of 2% to 4% and core constant-currency earnings per share growth of 4% to 6%, with the midpoint of the EPS guidance range at 5% aligning with company expectations.

Meanwhile, the company expects foreign exchange translation to provide an approximately 1-percentage-point tailwind to reported net revenue and core EPS growth, respectively. Additionally, PepsiCo plans to return roughly $8.9 billion to shareholders in 2026, including $7.9 billion in dividends and $1 billion in share repurchases, with the dividend set to increase by 4% starting in June 2026.

In addition to performance-related plans, PepsiCo announced on Thursday an upgrade to its Gatorade energy drink brand, which includes a new low-sugar formula and a new product featuring a proprietary electrolyte blend designed to effectively extend hydration, set for release later this year.

Notably, despite results exceeding expectations, investors remain concerned about the outlook for global consumer goods companies amid surging energy costs, rising raw material prices, and geopolitical conflicts triggered by the war in Iran.

PepsiCo Chief Financial Officer Steve Schmitt stated in a statement, "Looking ahead, the macroeconomic environment has become more volatile and uncertain due to ongoing geopolitical conflicts."