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PepsiCo's (PEP -4%) ailing stock price continues today after the consumer packaged goods giant, owning the Pepsi, Frito-Lay, and Quaker banners, delivered declining volumes across North America in Q4. While consolidated volumes flipped positive in the quarter, expanding by 1% across PEP's food and beverage lines, trends stagnated or deteriorated in North America, overshadowing this positive development.

In PepsiCo Beverages North America, volumes fell by 3% for the third straight quarter, not seeing positive growth since 3Q22. Meanwhile, in Frito-Lay North America, volumes weakened, sliding by 3% in Q4 versus a 1.5% drop last quarter. Similar to beverages, Frito-Lay has not posted positive volume growth since 2Q23.

Even though shares of PEP have been stuck in an extended correction leading into Q4 results, depreciating by 13% since last quarter, investors were hungry for a more encouraging report today. As a result, PEP is heading toward four-year lows reached last month.

• What seems to be the problem for PEP? Frito-Lay is generating the bulk of today's downbeat sentiment. Last quarter, PEP made investments geared toward providing more consumer value and improving in-store availability, actions that helped volume trends improve sequentially, as volumes improved to (1.5)% from (4.0%) in Q2. However, PEP could not sustain this momentum in Q4, a development that surprised the market today.
• CEO Ramon Laguarta commented that the investments have spurred some encouraging trends. For instance, the snack food category is starting to grow, albeit gradually. Additionally, PEP is addressing a lucrative away-from-home opportunity, bolstering its presence in this channel. PEP is also rethinking participating in several price partitions where it currently has no presence, such as the sub-$1 and sub-$2 markets. Furthermore, PEP is ensuring it has enough variety, such as multi-packs or single-serve, to appeal to households of different incomes.
• While PEP feels good about where it is surrounding the Frito-Lay banner, management expressed caution, noting that global markets remain volatile. Unemployment remains low, and inflation is easing. However, PEP acknowledged elevated geopolitical tensions that could impact its operations and the end consumer. This cautious optimism is reflected in its guidance, projecting FY25 organic revenue growth in the low-single-digit percentages yr/yr and core constant currency EPS growth in the mid-single-digit percentages.

After a noticeable slowdown in Frito-Lay in 2024, PEP is committed to stabilizing the category in 2025. Meanwhile, in beverages in North America, PEP is focused on expanding margins while also driving acceleration on its top line through innovation with "zero sugar" options, functional hydration, such as new Gatorade offerings, and teas and coffees. Given PEP's international presence and brand loyalty, demand is relatively inelastic, giving the company a solid foundation from which it can launch its initiatives. As such, PEP is worth keeping on the radar as a turnaround play. The company also raised its dividend today, giving it a 4.0% annual yield, which is a nice bonus.