PepsiCo warned of "rising inflationary pressures" for U.S. consumers

PepsiCo, the maker of Lay’s and Doritos chips and Pepsi and Gatorade beverages, reported mixed second-quarter results on Thursday. On the one hand, demand for protein snacks and “healthy” beverages that are low in sugar or sugar-free helped the company exceed analysts’ expectations for total quarterly revenue. However, at the same time, PepsiCo warned that the sales recovery that had begun in the U.S. has stalled—and the impact of inflation will intensify in the second half of the year, notes the Financial Times.

PepsiCo shares fell by more than 5% during trading on July 9, but then slowed their decline and were down about 3% at the time of publication.

— PepsiCo’s second-quarter profit rose 136% year-over-year to $2.98 billion ($2.18 per share). Excluding restructuring costs and other one-time expenses, earnings were $2.2 per share, compared with LSEG analysts’ forecast of $2.21, according to CNBC.

— Net revenue increased by 6.4% compared to the same period last year, reaching $24.18 billion, slightly exceeding analysts’ forecasts (they had expected the figure to be $23.95 billion). Organic revenue, which excludes the impact of acquisitions, asset sales, and currency fluctuations, rose by 2.4%.

— PepsiCo’s global food sales increased by 3% year-over-year, while beverage sales rose by 2% (excluding the impact of price and currency fluctuations). International markets were the main driver of growth, while demand in North America remained weak. Sales volume for the food division in the region remained unchanged compared to last year, while beverage sales volume declined by 4%.

“The quarter’s results were modest, as growth in the food and beverage categories in the U.S. slowed amid a decline in consumer spending due to the increasing impact of inflation,” said PepsiCo CEO Ramón Laguarta. During the earnings call, he noted that consumer demand was weaker than the company had expected—primarily due to gas prices, according to Bloomberg, citing Laguarta. According to him, due to rising fuel prices, consumers cut back more than PepsiCo had anticipated on spending at convenience stores and other retail outlets where impulse purchases typically occur.

The company also warned that it expects higher inflation in the costs of raw materials and other production resources in the second half of 2026 compared to the beginning of the fiscal year. At the same time, PepsiCo expects to offset a significant portion of the cost increases through improved business efficiency and the refund of a portion of the import duties it has paid.

— PepsiCo has kept its full-year outlook unchanged. The company still expects full-year organic revenue to grow by 2–4% and core earnings per share, excluding the impact of currency fluctuations, to increase by 4–6%.

In the second quarter, PepsiCo’s business growth slowed after a strong start to the year. In the first quarter, the company cut snack prices by up to 15% ahead of the February Super Bowl, hoping to win back customers who, amid persistent inflation, are increasingly switching to cheaper alternatives and preferring to buy products in smaller packages, Reuters notes. This strategy helped boost sales and revenue for PepsiCo’s snack division—one of the company’s two key sources of income—in the first three months of 2026. However, as the Financial Times reports, the effect of the price cuts proved to be temporary and had virtually disappeared by the second quarter.

Now, according to Reuters, food and beverage manufacturers are facing rising packaging and logistics costs due to persistently high oil prices amid the war with Iran. Price competition in the retail sector is adding further pressure. Earlier this week, Walmart announced a new round of price cuts on food items, including large-size bags of Lay’s Classic potato chips and 24-can packs of Pepsi, Diet Pepsi, and Diet Mountain Dew, the Financial Times reports. The newspaper attributes these changes, among other factors, to shifting consumer habits: more and more shoppers are avoiding highly processed foods, and the rapid rise in popularity of GLP-1 weight-loss drugs is putting pressure on demand for traditional snacks and other high-calorie foods.

In response, PepsiCo is updating its brand portfolio and expanding its lineup of products free of artificial colors and flavors. Specifically, the company has launched Gatorade Lower Sugar, a beverage with reduced sugar content, as well as high-protein products, including Propel, a sports drink mix, and Quaker Protein Rice Crisps.

“PepsiCo’s goal is not to create iconic brands, but to keep them relevant,” says eMarketer analyst Suzy Davidhanyan. (quoted by Reuters). “Consumers are still spending money, but they’re doing so much more consciously. They expect the brands they already know to evolve alongside them and offer a wider range of products,” she added.

“Although there have been some signs of improvement [in PepsiCo’s business], the pace of recovery has stalled amid inflationary pressures, which are making it harder for consumers to balance price and value,” Bloomberg quotes Nick Modi, co-head of global consumer and retail research at RBC Capital Markets. In his view, PepsiCo will also continue to lose market share in the beverage segment to its competitors—Coca-Cola and Keurig Dr Pepper.

Since the beginning of the year, PepsiCo’s stock has fallen 4%, while the S&P 500 index has risen 9.5%. According to MarketWatch, only 10 out of 25 analysts recommend buying the stock, 14 have a neutral “Hold” rating, and one analyst recommends selling the stock. The average price target is $164, which implies 15% upside potential relative to the most recent closing price.

This article was AI-translated and verified by a human editor