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PepsiCo (PEP) flirts with 52-week lows today after experiencing another quarter of declining volumes across North America in Q2. Meanwhile, the beverage and snack giant effectively lowered its FY24 organic revenue growth outlook, projecting an approximately 4% bump yr/yr versus its prior forecast of at least 4%. The difference in wording is important as it incorporates the possibility that revs could fall short of the 4% target. PEP kept its other FY24 predictions unchanged.

PEP reiterating its FY24 EPS outlook of at least $8.15 is still commendable. The company has also been steadily recovering its supply chain, which should be back to 100% by Q4. Similarly, PEP expects its refilling of store shelves to finish by Q4 as well.

However, like last quarter, these minor silver linings are unable to overcome the overarching issue at hand, i.e., a softer consumer environment domestically and abroad.

• Challenging economic conditions may not have been apparent in PEP's headline Q2 numbers, delivering a double-digit EPS beat on top-line growth of 0.8% yr/yr and organic growth of 1.9%, to $22.5 bln. However, volumes tell a different story, contracting by 4% in Frito-Lay North America and 3% in Beverages North America. Prices across these segments edged 3% and 5% higher yr/yr, respectively.
• Frito-Lay's 4% volume drop was particularly troubling as it marked the worst quarter for PEP in years. One of the problem areas with Frito-Lay is that consumption trends have shifted, moving to away-from-home from in-home, causing portion sizes to change meaningfully, which can drastically impact volumes. Also, unlike beverages, which can be difficult to replicate and command meaningful brand loyalty, snacks compete against a wider variety of alternatives, making a higher price tag less palatable.
  • PEP addressed pricing concerns, noting that some parts of the portfolio need value adjustments, which it is already making. As such, PEP felt optimistic that the category would begin to see improvements over the next two quarters.
• The volume compression in Beverages was disappointing and weakened from Q1. However, volumes have fared significantly worse in past quarters, taking some of the sting out of the drop in Q2.
• Internationally, PEP performed decently, boasting volume gains in Beverages in every region, while delivering a 5% bump in Convenient Foods in Europe, a reversal from the 5% drop last quarter. However, PEP's food line endured volume compression across Latin America and Asia Pacific. PEP was not too concerned, remarking that it does not foresee any issues in Latin America and that it is still witnessing solid performance in Asia even as the consumer remains cautious.

Even though PEP's blemishes from the quarter were not overly alarming, its performance is a frustrating continuation of past quarterly results. Prices are still bubbling across every category outside of Quaker Foods, which endured another sharp drop in volume regardless, placing further strain on the end consumer. It will be interesting to see how its peers perform over the coming weeks, including Coca-Cola (KO) and Keurig Dr Pepper (KDP). Last quarter, PEP's rivals posted considerably better beverage volume growth in the U.S., underpinning possible market share pressure.