PepsiCo's sales jump after it cuts prices

PepsiCo's decision to lower prices and cut artificial ingredients paid off in the first quarter, boosting demand for its snacks and drinks.

Revenue jumped 8.5% to $19.44 billion in the January-March period compared to the same period a year ago, the Purchase, New York, company said Thursday. That handily beat Wall Street’s forecast of $18.95 billion, according to analysts polled by FactSet.

“The consumer is coming back multiple times to our brands, responding to our holistic value plus execution, plus advertising, plus innovation strategy,” PepsiCo CEO Ramon Laguarta said Thursday during a conference call with investors.

PepsiCo leaned heavily into price increases to combat inflation in the aftermath of the COVID pandemic. The company hiked prices by double-digit percentages for eight straight quarters in 2022 and 2023 before settling into more moderate price increases.

That took a toll on sales. Consumers stopped buying Frito-Lay snacks or shifted to cheaper store brands. PepsiCo's market value has fallen by more than $40 billion from 2023.

PepsiCo began cutting prices on value brands like Chester's and Santitas last spring to win back exasperated customers. Then, last September, activist investor Elliott Investment Management took a $4 billion stake in the company and began pressing for further price cuts and other changes. PepsiCo agreed to accelerate its price cuts late last year.

In February, ahead of the Super Bowl, PepsiCo slashed U.S. prices on Lay’s, Doritos, Cheetos and Tostitos chips by up to 15%. At a Michigan Walmart on Thursday, a 9.25-ounce bag of Doritos was advertising a price rollback to $3.97, down from $4.48.

PepsiCo said new products like Cheetos NKD and Doritos NKD, which have no artificial ingredients, and snacks with trendy ingredients, like Smartfood FiberPop and Doritos Protein, are also attracting shoppers, both in the U.S. and internationally.

On the beverage side, PepsiCo is seeing new customers thanks to its recent acquisition of Poppi, a gut health soda, and a new lower-sugar version of Gatorade that has no artificial ingredients. On Thursday, PepsiCo announced that it will shift Gatorade's packaging and marketing to focus more on hydration for general consumers and less on athletes.

“So two types of consumers are coming into the category, because both of a stronger core and also innovation,” Laguarta said. “And I think we’re going to continue to play both levers.”

Net income rose 27% to $2.33 billion for the quarter. Adjusted for one-time items, the company earned $1.61 per share. That also beat Wall Street’s forecast of $1.54 per share.

PepsiCo shares rose 2% in morning trading.