PepsiCo lowered its full-year earnings expectations Thursday, citing increased costs from tariffs and a pullback in consumer spending.
The maker of Pepsi beverages and Frito-Lay snacks also said Thursday it plans to accelerate a shift to natural flavors and colors in its food and drinks. Earlier this week, U.S. health officials — including Health Secretary Robert F. Kennedy Jr. — urged companies to phase out petroleum-based artificial colors.
PepsiCo CEO Ramon Laguarta said 60% of PepsiCo's business is already free of artificial colors, and the Lays and Tostitos brands will phase them out by the end of this year. He said the company plans to phase out artificial colors — or at least offer consumers a natural alternative — over the next few years.
“We stand by the science. Our products are very safe and there’s nothing to worry about,” Laguarta said in a conference call with investors. “But we understand that there’s going to be, probably, a consumer demand for more natural ingredients.”
PepsiCo said it now expects its adjusted earnings per share to be even with last year, when it reported a full-year adjusted profit of $8.16 per share. Previously it expected mid-single-digit percentage growth.
A 25% tariff on imported aluminum is among those hitting PepsiCo and other beverage makers.
But PepsiCo is also more vulnerable than some rivals because it makes much of its concentrate for the U.S. market in Ireland, which is now subject to a 10% tariff. Rival Keurig Dr Pepper, which makes concentrate for the North American market in St. Louis and Ireland, reaffirmed its full-year adjusted earnings guidance Thursday despite tariff pressures.
“We’ve factored in what we know about tariffs today, and we factored in mitigation plans," PepsiCo Chief Financial Officer Jamie Caulfield said Thursday in a conference call with investors. “Some of those will be able to execute more quickly. Some of those will take more time to execute.”
The company didn't provide details of how it plans to mitigate tariffs.
PepsiCo said in February that years of double-digit price increases and changing consumer tastes had weakened demand for its snacks and drinks. Caulfield noted that U.S. consumer confidence has only worsened since then.
“We probably aren’t feeling as good about the consumer now as we were a few months ago,” Caulfield said.
The company has responded by investing more heavily in value brands, like Chester's and Santitas, and adding more promotions and value packs. It also burnished its health credentials last month by purchasing Poppi, a popular prebiotic soda brand, for $1.95 billion.
PepsiCo said it expects “elevated levels of volatility and uncertainty” for the rest of this year. Geopolitical tensions are impacting sales in some markets, the company said. Sales in China have been lagging, but India and Brazil were bright spots in the first quarter.
PepsiCo’s net revenue fell 1.8% to $17.9 billion in the first quarter as its sales volumes dropped around the world. That was slightly higher than the $17.8 billion Wall Street was expecting, according to analysts polled by FactSet.
The Purchase, New York, company’s net income fell 10% to $1.8 billion. Adjusted for one-time items, PepsiCo earned $1.48 per share. That was slightly lower than the $1.49 analysts forecast.
Shares of PepsiCo slipped 3% in morning trading Thursday.
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