PepsiCo’s strategy around innovation and winning new customers is paying dividends with volumes expected to pick up in the second quarter and beyond.
Markets reacted favourably to the first-quarter results issued yesterday (16 April) as the shares closed up 2.3% but PepsiCo stuck with its organic revenue growth guidance of 2-4% given the uncertainty around the Middle East.
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The PepsiCo Foods North America (PFNA) business posted volume growth of 2% for the quarter ended 21 March, while the beverages division (PBNA) saw volumes drop 2.5% due to a switch to a third-party manufacturer in case-packed water. Otherwise, volumes for that unit would have been flat, CEO Ramon Laguarta said.
Laguarta set the tone on a call with analysts: “If you look at all the execution of the hungry and thirsty for growth strategy across the company, it is very positive. We see an acceleration, international continued that. We’ve seen momentum in PBNA, both organic and reported. So that is good as well. And sequential growth in PFNA.”
Volumes are also expected to be supported by the FIFA World Cup 2026, which kicks off on 21 June, toward the end of PepsiCo’s second quarter.
While PepsiCo’s Lays crisps brand forms part of the overall sponsorship of the event, its marketing play seeks to capture consumers across the portfolio.
Laguarta explained: “This is obviously a very big opportunity to engage consumers… If you think about innovation, we’re going to have flavours from around the world being executed in every market…. We are working on ‘no Lays no game.’”
He added: “We’re going to have Quaker participating as well in the event as the players walk into the stadium, the children will have the Quaker brand, and that’s going to be part of the restage of Quaker globally.
“We have partnerships with our retailers and quick-delivery partners around the world to make sure that we capture those occasions in the moment and the consumers have the opportunity to order Lays and to order some of our drink combinations to enjoy the game with friends.”
Away from the games and the case-packed water impact on beverages, Laguarta said PBNA volumes will accelerate in the “coming periods” helped by the Poppi energy drinks portfolio, a deal PepsiCo struck last year.
The division reported 2% organic growth and 9% in reported terms in the first quarter.
“We’re growing at an accelerated way, including energy,” Laguarta said. “We see ourselves very statistically leading the functional hydration category and that category is accelerating. For the first time in several years, we see functional hydration, including sports and the rest of functional hydration, growing ahead of LRB [liquid refreshment beverages].”
He said there was still “work to do on accelerating” the coffee and tea businesses, while the Mountain Dew brand will be supported by new innovation and flavours.
“Our Poppi business is starting to accelerate now, and then we have opportunities with Mountain Dew,” he added.
In food, Schmitt said PepsiCo is “going to continue to play offense” in the PFNA business.
“We’re investing in value. We have exciting innovation,” he added. “We’re supporting that with additional advertising and marketing, and we’re growing volume and sales.”
Laguarta said PepsiCo is still in the throes of a “more holistic restage of the full business” in food, including Lays, and increasing household brand penetration across the portfolio.
“On top of that, we see our permissible portfolio growing, in some cases, double digits, brands like SunChips, Smartfood, and some others. So holistically, we think we’re in a very good place… Overall, we think that the consumer is back in our brands.” he said.
“We’re very optimistic about the sequential improvement of that business.”
The Middle East conflict was also a topic of discussion but the PepsiCo team emphasised the company has seen no impact from a supply chain perspective so far, helped by hedging strategies out to six to 12 months.
Schmitt said: “Our assumption is that inflation will come. The order of magnitude, we’re still working through, and I think a lot of that is still to be determined.”
He outlined the measures PepsiCo could take.
“You grow your way through it and really leverage your infrastructure. The second is you push harder on productivity. And third, you do have options with your price-pack architecture. We’d like to do the majority of it through the first two.
“But I think the reality is, depending on the magnitude and time that we have, inflation will likely play in all three areas to combat the inflation. From a visibility and guidance standpoint, our assumption is that we can mitigate what comes our way this year, and that’s really reflected in our assumptions on guidance.”
